"Rapidly changing resource tax and charge policies are attributively destabilising operations of enterprises and blemishing the investment climate. As the reduction in a series of import tariffs affects budget revenue, the hike in natural resource tax is necessary to ensure budget revenue. However, a clear roadmap needs to be gradually carried out and extended to avoid disorder and instability on the investment environment.”
This is the remark by Ms Huong Vu, a representative of Tax Working Group of Vietnam Business Forum, at a meeting in Hanoi that collected business opinions for the completion of a resolution on natural resource tax rates drafted by the Standing Committee of the National Assembly.
Royalty rates hiked on most minerals
Pham Dinh Thi, Director of Tax Policy Department under the Ministry of Finance, said although Resolution 712/2013/UBTVQH13 dated December 16, 2013 effectively discourages the exploitation of non-renewable resources and ensures effective exploitation of natural resources, current tax rates still limits the reasonable, economical and effective exploitation of resources. Therefore, the Ministry of Finance submitted adjustments to tax rates for each group of resources.
According to the draft resolution put up for enterprises’ opinions, most of current resource tax rates will be revised up from 2 percent to 12 percent. Specifically, the tax for iron is proposed at 7-20 percent compared to the current 12 percent. The proposed and current tax for titanium, gold, wolfram and antimony, copper, and nickel are 7-20 percent and 16 percent, 9-25 percent and 15 percent, 7-25 percent and 18 percent, 7-25 percent and 13 percent, 7-25 percent and 10 percent, respectively.
Notably, the tax for aluminium and bauxite is kept unchanged at 12 percent as the bauxite-alumina complex in Lam Dong province and the Nhan Co alumina project in Dak Nong province are projected to make profit in 2018 and 2021, respectively.
Reportedly, takings from royalties in Vietnam have increased rapidly in recent years. The total amount of royalties collected reached VND39,299 billion in 2011, VND41,312 billion in 2012, VND37,875 billion in 2013 and VND38,048 billion in 2014, accounting for 4.4 percent of the total State budget revenue.
Delay proposed by businesses
Evan Spencer, General Director of Ban Phuc Nickel Mines Company, said his company had invested US$130 million in Vietnam since 2007 and got the first batch of products in 2014. However, taxes and fees like those for export, natural resources, environmental protection and others have picked up in the period. Total tax payments by Ban Phuc Nickel Mines will rise 218 percent, or by US$76 million, from its initial estimates for the 2007-2014 period.
“We have lost US$35 million due to price and tax policy changes. Foreign mining companies have thought Vietnam is an ideal place to invest, but ad hoc tax and fiscal policy changes have inhibited them,” said Evan Spenser.
At the conference, a representative from Thai Duong Group Joint Stock Company said that the increase in resources taxes will result in a rise in other mining costs and incite existing miners to focus rich ores with low mining costs while leaving poor ores and wasting national resources. The tax increase only affects law-abiding miners, not illegal ones; thus, it will increase illegal mining. This goes against policies on effective and economical resources management and environmental protection.
In addition, the representative added that the tax hike may increase in State budget revenue in the short term but will reduce it in the long term because the total amount of minerals extracted will fall, resulting in a decline in resource tax, environmental charges, VAT, export tax and corporate income tax.
In particular, rapid changes in tax policies in a short time will destabilise the business environment of Vietnam, making businesses reluctant to invest in intensive mineral processing, but invest in simple extraction instead. More broadly looking, this goes against the Resolution 19 of the Government on improvement of business environment and national competitiveness. The increase in resource tax aimed to offset a decline in export duties on minerals caused by FTAs that Vietnam is a signatory is unreasonable in terms of time and management tools.
At the seminar, representatives from mining companies proposed that the State reconsider the hike in natural resource taxes but focuses on such measures as illegal mining prevention, standard enforcement, technical safety regulations, mining and processing technologies, environmental protection, and mine planning and licensing policies.
Dr Nguyen Canh Nam - Vietnam Mining Science and Technology Association
The rise in resource tax will lead to increased production costs. Then, companies will have some options to choose. If they keep selling prices unchanged, they will break even or suffer losses, and their corporate income tax will fall or come to zero. If they choose to cut costs to reduce loss by extracting only high-quality ores with easy conditions, extractable reserves, gross output and mine lifespan may decline, giving rise to a drop in resource tax. In addition, hard-to-exploit mines will be left behind.
Mr Vu Hong - Deputy General Director of Nui Phao Mining and Mineral Processing Co., Ltd
The natural resource tax hike will push up mining costs. Therefore, it is likely that enterprises would tap rich ores and skip poor ones, resulting in a waste of natural resources and a series of economic, social and environmental implications. Tax and expense burdens (inclusive of corporate income tax) of Nui Phao Company will amount to 30 percent of direct operating costs, of which over 50 percent is resource tax.
Raising taxes only causes difficulty for businesses and pushes up resource prices, thus stimulating illegal mining - a contrary outcome to policies on effective, economical resources management and environmental protection.
Since 2008, tax policies regarding mineral products have undergone many changes. The increase in resource tax rates and royalties will bring about double impacts on production and business operations of enterprises. This will destabilise the business environment, discourage businesses from investing in mineral processing but focusing on tapping raw minerals for sale, which is contrary to the spirit of Resolution 19 of the Government on improving business environment and enhancing national competitiveness.
Quynh Chi
Vietnamese
