Measuring the Effectiveness of Corporate Income Tax Investment Incentives for Domestic Companies in Vietnam

This study measures the effectiveness of corporate income tax (CIT) investment incentives for domestic companies in Vietnam. We compared these investment incentives to the costs incurred from CIT revenue foregone, using a survey of 140 private, domestic companies located in three locales in southern Vietnam: Tien Giang province, Binh Duong province, and Ho Chi Minh City. We used cost-benefit analysis to calculate the redundancy rate of CIT incentives, whereby tax incentives are provided to a company to encourage an investment, but the investment would have been made anyway, even without the incentives offered, resulting in a windfall gain for the company concerned, and effectively a subsidy by the government. Across the full sample, the resulting public subsidy (i.e. the amount of CIT revenue foregone for an equivalent amount of additional investment made as a result of the incentive), using the standard CIT rate of 28%, was between 62% and 75%, depending on whether or not one considers the time value of money.