With great potential amid the ever-growing importance of science and technology, Việt Nam has promoted investment in this field by offering tax incentives and resources. Former Minister of Science and Technology Nguyễn Quân talks to Khoa học và Phát triển (Science and Development) online newspaper about the limitations in legal documents that regulate science-technology investment in Việt Nam and recommendations for the country to unlock its potential in this field.
Early this year, the Finance Ministry issued Circular 03/2021/TT-BTC on Corporate Income Tax (CIT) exemption and reduction policies for science-technology enterprises. What is new in this circular?
Similar tax incentives on science-technology companies were stipulated in two decrees in 2007 and 2010 respectively and another circular. This new document is expected to make tax procedures easier for science-technology businesses.
However, there are some limitations in Circular 03. For example, previous legal documents regulated that science-technology businesses are entitled to the same tax incentives applied for high technology (hi-tech) companies or those investing in hi-tech parks. This means that they enjoy tax rate of 10 per cent for 15 years or during the life span of the project.
However, Circular 03 doesn’t specify CIT rates to which science-technology companies are entitled, so there is a chance that they may be entitled to CIT exemption and reduction for a total of just 13 years.
This will make investing in science and technology less attractive and put science-technology companies at a disadvantage compared to hi-tech companies, companies investing in hi-tech zones or companies that have hi-tech projects.
What is more, Circular 03 is about preferential tax policies while previous documents regulated other issues like human resources, transfer of assets and sharing of profits. Making these policies invalid will make it hard for those who want to establish or shift to a science-technology company.
In addition, the procedures to apply for tax exemption and reduction are still complicated in many places so many businesses would rather use normal tax rates than apply for tax incentives.
A lack of consistency among legal documents may also make it hard to be applied in reality.
Could you elaborate more on this inconsistency?
Take the Law on Science and Technology and Law on Personal Income Tax as examples. The law on science and technology stipulates that income from science-technology research projects will be exempt from personal income tax, however, there is no such incentive in the Law on Personal Income Tax.
According to the Law on Science and Technology, researchers who have special contributions like winning the Hồ Chí Minh award or international awards on science technology are offered pay rises but this incentive is not mentioned in the Law on Public Employees.
Similarly, State funding for science-technology research or tasks is mentioned in the Law on Science Technology but the Law on State Budget just has general requirements that all tasks using State budget must follow a same procedure: make a cost estimate, have approval at the ministerial or provincial level, among others, which makes it take nearly a year before the funding arrives. This also applies to urgent tasks like developing COVID-19 vaccines or producing ventilators unless the Government decides otherwise.
In science and technology, funding should be made available promptly when researchers have research ideas or there are demands from the market. We still maintain an old practice that is found nowhere else in the world.
We must have a consistency in legal documents and change our mindset, otherwise research activities are still trapped in these limitations.
Some people think that there is inconsistency in legal documents because we still don’t seem willing to take risks in scientific research. What do you think about this?
Science technology research can fail. The chance of failure may be higher than success. Meanwhile, the Law on State Budget doesn’t mention venture capital, which means that investment is reserved for successful projects only.
The State budget for scientific research, like corporate investment, should include venture capital. There is a regulation in the Law on High Technologies passed in 2008 that a national hi-tech venture investment fund will be piloted and then can be transferred to the private sector or divested, but so far it has not been implemented.
As this venture fund initiative is yet to be carried out, we don’t know about its operation mechanism and impacts of venture capital to issue relevant legal documents on venture capital.
Nowadays the biggest problem of start-ups is that there is no legal regulation on venture capital. The Law on Support for Small- and Medium-sized Enterprises in 2017 did mention creative start-up investment funds and create a legal framework for this but there have been no guidance circulars on the procedures needed and operation mechanism.
Recently you have supported Hanoi University of Science and Technology in establishing a start-up fund. Can you elaborate on how the fund works?
Hanoi University of Science and Technology has just built its first start-up investment fund for their students and alumni. It’s extremely hard. Though the university has financial capacity and is very eager to invest, it seems impossible as auditors do not accept it as eligible expenses. So the only way is to mobilise personal capital, but if personal capital is utilised then the institution will not be able to benefit from the profit of the fund. Experience from other countries like the United States, Japan, South Korea and Israel showed that venture capital would bring high profit. However, our policies do not allow using State budget for venture capital, which discourages people to do such things.
Looking into these problems, we can see that there are still many limitations in science-technology development in our country. This field hasn’t fully tapped the potentials and our expectations.
Taking the pandemic for example, Việt Nam was among countries that declared successful research for the COVID-19 vaccine very early. But the progress slowed when it came to clinical trials because the trials rely heavily on government investment. Private businesses cannot afford it and do not have sufficient capacity. If there is no timely investment, whether from government or private sector, then the product cannot be licensed and reach the market. This also means our chances of preventing the pandemic and to compete are gone. If we are late and the whole world is vaccinated before we release our vaccines, then we can’t sell our products and this leads to a huge waste of resources.
In the context of development and integration, like it or not, international products are pouring into Việt Nam. FDI businesses also bring in technologies, therefore we must handle these limitations to push the potentials of Việt Nam’s science and technology as well as change our mindset on investment for science and technology so we can catch up with the world. — VNS