Formosa counts cost of decision

A Taiwanese firm’s multi billion dollar steel and port project has been dealt a blow. Local authorities have refused to give Formosa preferential tariff treatment for its giant steel mill and seaport complex project in central Vietnam.

In a letter dated April 27 sent to the ministries of Industry and Trade, Planning and Investment, Finance, the State Bank and Ha Tinh People’s Committee, Hung Nghiep Formosa Ha Tinh Steel

Limited Company’s leader asked for exemption of the tax on foreign loan interests, which currently stands at 10%. Under Vietnamese laws, overseas-based financial institutions have to pay the Vietnamese government a 10 percent tax on loan interests provided to enterprises operating in Vietnam. In such a case, more often than not, the tax payment is passed onto the borrower.

According to the firm’s general director Ngo Quoc Hung, as the Vung Ang Economic Zone-based steel mill and port complex project was labelled as one of the nation’s key projects, it should be exempted from the tax.

The $16 billion, 15 million-tonne annual capacity steel mill and deep-water Son Duong port project broke ground in July. The first stage construction was initially planned to be completed in 2008. It was, however, delayed because of many reasons including site clearance and compensation works.

Nguyen Van Phung, deputy general director of the Ministry of Finance (MoF), revealed that the ministry had already sent a reply to the Taiwanese firm, which stressed that no support would be offered to the firm.

From the very beginning, local authorities already promised to allow the investor to enjoy a preferential 10 percent corporation income tax, which was significant lower than the 25 percent being applied in Vietnam.

Phung stressed that Formosa’s project had already received some preferential treatment in comparison with other foreign-invested projects in Vietnam.

The MoF also said it would seriously consider another Hung Nghiep Formosa requirement on exemption of import tax on overseas raw materials for local manufacturing. In his letter, Hung demanded the application of a 0 percent of import tax on coal and iron ore bought from abroad during the project’s 70-year lifespan.

He said although the Vietnamese government was applying a 0 percent import tax on those raw materials, the company still needed this level during operations to enable its stable production.

“After the completion of the project’s construction in the second phase, when it will be able to produce 15 million tonnes of steel annually, we need raw materials in great quantity with a stable quality and supply. Therefore, it is necessary to import the materials from overseas to meet the plant’s demand,” Hung said.

The steel mill is projected to be built in two stages, with the first stage costing $8.7 billion churning out 7.5 million tonnes of steel annually. Of the $8.7 billion, $6.2 billion is planned to come from loans. Vung Ang Economic Zone authorities said they had completed transferring land to investor to enable surveying works.

“Construction of the steel mill is expected to begin later this year,” said Thai Van Hoa, deputy general manager of Vung Ang Economic Zone.

VIR

Tags: Formosa, Formosa Ha Tinh Steel, Vietnam steel industry