Last week, the Vietnam Chamber of Commerce and Industry hosted a workshop with the National Assembly's Budget and Finance Committee to collect opinions on its royalties bill.

The bill, written by the Ministry of Finance (MoF), is expected to be tabled at the National Assembly in October and could take effect on January 1, next year.

Under the bill, the MoF will maintain the current tax range stipulated in the amended Ordinance on Royalties, which took effect on January 1 this year, which hiked the royalties on metallic and non-metallic minerals to almost six times higher than previous regulations.

Despite strong protests from mining sector foreign investors, royalties on metals will remain at between 5 and 30 percent, while the levels for non-metals will be in the 3 to 10 percent band.

Taxes on gemstones will be between 10-30 percent, gold 6-30 percent, coal 4-20 percent and 8-30 percent on rare earth. Speaking at the workshop, the Vietnam Business Forum's Mining Working Group voiced serious concerns over the high levels of the proposed royalty rates.

"At a royalty tax rate of 30 percent of the value of the minerals recovered, no investor could ever consider committing funds to a mining project in Vietnam. Even at the lowest proposed royalty tax rate of 5 percent, investors would have to think twice when most of the rest of the world applies a royalty rate in the average range of 2-4 percent," said Bill Howell, deputy chair of the group.

Howell said with these high rates, together with corporate income tax rates of 32 to 50 percent for some mineral projects and export tariffs of 20 percent, would worsen foreign investment in the local mining industry amid the global economic downturn. Christopher Curnow, general director of the Lai Chau Stone Co, said he had witnessed the mining sector turn from "extremely attractive" to "no longer attractive". "If these proposals gain approval, I might think about leaving Vietnam," Curnow said.

Experts at the workshop also warned that the wide range of taxes in the bill could lead to huge uncertainty in investors' projections and business plans.

Vietnam Investment Review - September 8, 2009