Unusual incentives sought for colossal steel complex

Ninh Thuan Province has promised exceptional incentives for the US$10.6-billion steel project, which would go beyond what is normally offered to businesses under the Corporate Income Tax (CIT) Law.

According to the local news site Danviet.vn, Hoa Sen Group would enjoy many policy incentives for its Ca Na-Ninh Thuan steel complex as part of a strategic cooperation agreement signed last October between the Ninh Thuan government and the company.

Accordingly, Ninh Thuan pledged to seek the Prime Minister’s approval for a CIT rate of only 10% during 69 years of project implementation, CIT exemption for four years from the first year of taxable income being generated and a 50% of tax reduction for the following nine years for the project.

Besides, the project could carry forward its losses, if any, to the subsequent years for deductions from taxable incomes after tax settlement with tax authorities. The loss transfer period must not exceed five years.

These commitments are incongruous with existing regulations.

Article 15 of the 2014 Investment Law specifies that projects eligible for tax incentives must belong to sectors subject to investment incentives or implemented in priority localities approved by the Government.

Located at Phuoc Diem Commune of Thuan Nam District, Ca Na-Ninh Thuan steel project is not on the list of priority sectors, but it is in a difficult area as all the districts of Ninh Thuan Province are classified as extremely poor.

However, articles 13, 14 and 15 of the 2008 CIT Law, amended and supplemented in 2012 and 2014, stipulate that new enterprises established from investment projects in the areas with extremely underdeveloped socio-economic conditions, such as Ca Na-Ninh Thuan steel project, will enjoy a 10% preferential tax rate during 15 years from the first revenue-generating year.

Besides, within four years from the occurrence of taxable income, enterprises will be exempted from CIT and will enjoy a 50% tax reduction in the following nine years.

The CIT Law also states that the tax preferential period can be extended but must not exceed 15 years for large-scale and high-tech projects, production projects with a minimum VND12 trillion (US$535.2 million), projects using technology evaluated in line with the High Technology Law, and projects disbursed within no more than five years from the date of receiving investment licenses.

A tax officer in Ho Chi Minh City told the Daily that current regulations do not support a preferential CIT rate of 10% in 69 years as reportedly committed by Ninh Thuan authorities for Hoa Sen Group’s steel complex.

Other problems have arisen with the steel complex. It has been added to the zoning plan for steel production and distribution in Vietnam while it is being reviewed.

The Government Office said last week that Deputy Prime Minister Trinh Dinh Dung has called on relevant agencies to review and adjust the zoning plan by 2020 with a vision towards 2025.

Dung called for limited investment in production of steel products which have met local demand. He said the review should also focus on steel production in the region and the world to effectively adjust the zoning plan with a vision until 2035.

Ninh Thuan’s vice chairman Phan Van Hau was quoted by Phap Luat HCMC newspaper as saying that part of the Cai River reservoir would be supplied for steel production.

The reservoir with a capacity of 219 million cubic meters has a total investment cost of over VND3.8 trillion (around US$170.5 million) including over VND2 trillion funded by proceeds from government bond sales. It was built from 2010 to provide fresh water for more than 4,300 hectares of crops, aquatic farming, local households and environmental purposes.

Therefore, experts said, Ninh Thuan is regarded as the driest province in Vietnam, so it is irrational for Ninh Thuan to use water in a reservoir with more than half of the investment coming from the State budget to provide water for the Ca Na-Ninh Thuan steel project the province is trying to entice.