Last update 3/8/2012 2:20:00 PM (GMT+7)

When FIEs practice deception

VietNamNet Bridge – About 50 percent of foreign invested enterprises (FIEs) operational nationwide report losses.

FDI statistical error could be up to 10 billion dollars

Some information that has stirred up the public recently, is that the statistical error in calculating foreign direct investment (FDI) could be up to 10 billion dollars.

In a recent report, the Vietnam Association of Foreign Invested Enterprises (VAFIE) realized that of the implemented capital of FDI projects, 20 percent comes from domestic sources, and 80 percent from foreign sources. Meanwhile, to date, Vietnam still does not have separate statistical figure about foreign sourced capital.

The UNCTAD’s report about FDI released in July 2010 showed that by the end of 2009, the implemented FDI capital had reached 44 billion dollars. Meanwhile, the Vietnamese Statistical Yearbook says the figure was 67 billion dollars.

As such, if the figure about 20 percent of domestically sourced capital is true, the actual foreign sourced capital would be 54 billion dollars only, which means the big error of 10 billion dollars.

State officials, when asked about the gap in the statistics, blamed this on the “technical issue.”

“Foreign investors remit money to Vietnam via accounts, and bring machines and equipments through the import channel. As such, it is very difficult to calculate the volume of capital remitted to Vietnam under the mode of imported equipments and machines,” former Head of the Foreign Investment Agency, Phan Huu Thang explained.

Thang went on to say that the Vietnamese investment management agencies have better information sources, because they not only have the figures about the cash flow, but also the information about the declared value of equipments and machines, or the value of trading rights and patents.

However, it seems that taxation bodies have more convincing stories and figures to explain the statistical gap.

Kad Industrial SA Vietnam located in Da Nang City makes garments in accordance with the contracts that the US parent company has signed with other foreign enterprises.

The project has created the accumulative loss of nearly 14.4 billion dong. The outsourcing unit price which is lower than the production cost has been found out as the main reason behind this.

The accounts show that the loss has been caused by the high depreciation fee which is 1.5 times higher than the planned level.

After the investigation, the Da Nang City Taxation Department has found that all the machines and equipments of the garment factory were imported from some old production bases in the US, which were counted on as the capital contribution by the US parent company.

It is obvious that the machines’ production capacity is not as high as declared by the company. However, the taxation body could not clarify the suspected figure about the outsourcing cost, because it cannot exactly define the market price of the contributed equipments.

Kad Industrial SA is not alone. According to the HCM City Taxation Department, some well known brands such as Cocacola, BAT tobacco have also been found in the list of businesses that “play tricks” to evade tax. They declared higher input costs, including the machine and equipment prices, royalties, advertisement costs to reduce the profits, thus allowing to reduce the tax sums they have to pay.

The General Department of Taxation in a recent workshop said that about 50 percent of FIEs reported losses, many of which reported a loss for the last three consecutive years.

In Binh Duong province, for example, 754 enterprises, or 50.6 percent of FIEs reported loss for 2010. Of these, 200 enterprises incurred the accumulative losses higher than the stockholder equity. The proportions are 60 percent in HCM City and 52.2 percent in Dong Nai.

Source: TBKTVN