MoF dashes MoIT’s bid for steel plant tax exemption
MoF dashes MoIT’s bid for steel plant tax exemption
The implementation of the second phase in the mammoth Thai Nguyen Iron and Steel expansion project is hanging in the balance after the Ministry of Finance disagreed with most of the incentive proposals necessary to the project’s resumption.
In its Document No.4199/BTC-TCT, which replies to the Ministry of Industry and Trade’s (MoIT) proposal on an import duty exemption of about VND65.5 billion ($3 million) for materials and equipment in the project’s second phase, the Ministry of Finance (MoF) ordered that all parties must adhere to current regulations under the Law on Import and Export Duties. Essentially, this means that the tax exemption previously enjoyed by the project on equipment import duties will no longer be available.
In its proposal, the MoIT said that since the developer was actively preparing to restart the project in the near future, the import duty exemption would help reduce pressure on the project’s capital resources. In respect to the tax exemption proposal of about VND133 billion ($6.1 million) imposed on the contractor, the MoF, resorting to diverse current legal documents, stated that in line with current laws foreign contractors generating revenue when implementing contracts related to the provision of products and services in Vietnam have an obligation to pay tax on such revenue.
The MoF also turned down another MoIT proposal relating to the application of incentives on project loans at Vietnam Development Bank (VDB) and VietinBank. These incentives include interest rate exemptions on an estimated VND386 billion ($17.7 million) for the project’s suspension of operations from July 2012 to the end of March 2016. According to the 2015 financial statement of Thai Nguyen Iron and Steel JSC (Tisco), during 2014-2015 alone, the interest rate payment for the project – not including the original debt payment – amounted to VND260 billion ($12 million).
Earlier, in March 2016, developer Tisco released a project review report in which the project’s second phase total investment capital was revised upward to VND9.03 trillion ($414 million) from the previous estimate of VND8.1 trillion ($371 million). The revised figure was reached after Tisco hired the Vietnam National Construction Consultants Corporation to draw up cost estimates, and the Institute of Construction Economies worked on appraisals leveraging the negotiation results and price offers by the project’s engineering-procurement-construction contractor, China Metallurgical Corporation (MCC). Tisco’s report noted that this new higher estimate for total investment capital would mean that the project would fail to meet its targets on the internal rate of return (IRR) and the capital recouping timeline. To increase the project’s viability, Tisco and the hired consultants have worked out a scenario to ensure that the project scores a 10.78 per cent IRR, and that it would recoup its capital after 17 years.
