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Three challenges to Vietnam's 2024 GDP growth target

Three challenges to Vietnam's 2024 GDP growth target

Saturday 17, 02 2024
The risks to Vietnam's economy in 2024 come from China's economic recovery being weaker than expected, the impact of the global minimum tax policy and geopolitical risks.

Risk and driving forces

In the newly released 2024 Debt Capital Market Outlook report, FiinRatings mentions challenges and risks for the recovery of the Vietnamese economy. Specifically, China's economy, a partner that accounts for 25% of Vietnam's import-export turnover, has recovered weaker than expected. In 2023, deflation occurred in China at a rate similar to that after the global economic crisis.

Risk and driving forces

The second risk comes from the impact of the global minimum tax policy on existing FDI flows and attracting new capital. Besides, geopolitical conflicts can become complicated and escalate, such as the war between Russia and Ukraine, and the conflict between Israel and Hamas in the Middle East.

The analysis team also mentioned 4 main drivers in 2024, including recovery of import and export activities with trading partners. In the short term, the conflict in the Red Sea may increase the need to stockpile goods and alternatives among countries partnering with Vietnam.

The second driving force is that the private and public sector investment is expected to continue to grow by 8% and 10%, according to ADB forecasts, with major projects about to be implemented. FDI capital flows continue to be expected to grow by 10-15%.

In addition, domestic consumption may recover with the support of deposit interest rates being kept at a low level, and the reduction of VAT from 10% to 8% was extended from January 1, 2024. until June 30, 2024.

Analysts also believe that the economy will have more motivation to recover from the laws and policies in important fields such as Real Estate, Credit Institutions or Energy that have been passed, which will be the foundation for creating a premise for businesses to invest and implement projects, especially projects that have been delayed in the past 2-3 years.

Global minimum tax policy

Regarding the global minimum tax, from the beginning of this year, Vietnam has imposed a global minimum tax with an applicable tax rate of 15%, for multinational enterprises with total consolidated revenue of 750 million euros (about 800 million USD) or more in two of the four most consecutive years. Taxable investors are required to pay the global minimum tax in Vietnam.

Global minimum tax policy

The imposition of the global minimum tax will directly affect the benefits of foreign investment enterprises during the period of tax exemption and reduction incentives, with the actual tax rate lower than 15%. That means Vietnam's tax incentives for foreign businesses will no longer be effective, so it may affect the investment environment. Discussed at the National Assembly session at the end of 2023, a number of National Assembly delegates suggested that the Government have appropriate investment incentive solutions, clarifying the tax incentive regime for new investors entering Vietnam.

Expressing opinions, the National Assembly Standing Committee considers these to be valid opinions. Currently, the Government has not made an overall assessment of the investment incentive system, including incentives through corporate income tax and non-tax measures to have an alternative after the global minimum tax is applied.

Meanwhile, the Corporate Income Tax Law has not been amended, so multinational corporations making new investments in Vietnam will be governed by the Corporate Income Tax Law and this resolution. This means that foreign investors entering Vietnam still enjoy tax reduction incentives. They then have to pay back this tax reduction incentive, and can receive additional support outside of taxes.

Therefore, in addition to the resolution on tax imposition, the National Assembly has assigned the Government to develop a draft Decree on the establishment, management and use of the Investment Support Fund from global minimum tax revenue and other legal sources in 2024. This policy aims to stabilize the investment environment, attract strategic investors, multinational corporations and support domestic businesses in a number of areas that need encouragement.

In the long term, the Government needs to comprehensively evaluate current tax incentive policies and soon amend the Corporate Income Tax Law along with a plan to adjust the tax rate and tax incentive system.

Faced with the possibility that businesses that must pay the global minimum tax in Vietnam will file a lawsuit if they want to pay this tax back to their mother country, the National Assembly requests the Government to proactively have appropriate solutions and handling plans if disputes or complaints arise to ensure a good investment environment.

Source: vietnambiz

Compiled by VietnamCredit

Vietnam Economy

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