A circular issued by the Ministry of Information and Communicatio, which took effect in April 2014, stipulates that hi-tech businesses can enjoy tax incentives of at least 20 percent of the total production cost spent in Vietnam. The required proportion is 30 percent for software products.

In addition, businesses also have to meet many other requirements in terms of revenue, the number of users of products, and technical certificates.

However, the Bidding Law which that will take effect on July 1 sets higher requirements on businesses, stipulating that tax incentives will be applied only to products with domestic production costs that account for 25 percent of the total production costs.

The “domestic production cost” is calculated by subtracting the total expenses that businesses have to pay to make products, and the import cost prices, taxes and charges.

Le Hong Ha, deputy chair of the Vietnam Association for Information Processing (VAIP), said businesses were confused by the differences in the documents.

Vietnamese businesses will meet many challenges if the provisions of the bidding laws are applied.

Raising the localization ratios, i.e the percentage of locally-made content of products, remains a headache for Vietnam, even though the government has offered many incentives to encourage businesses.

Enterprises in the HCM City Hi-Tech Park (SHTP) have also warned that it may be impossible to obtain the localization ratio of 25 percent by next year, as required by SHTP (Saigon High-Tech Park).

Le Bich Loan, deputy head of SHTP’s Board of Management, said SHTP hopes the average localization ratio of the businesses in the park would rise to 25 percent by 2015 and 40 percent by 2020 from the current 20 percent.

However, Tran Tien Dat, managing director of Datalogic Vietnam, which makes barcode readers and has total revenue of $160 million a year, said it would be difficult to reach that goal.

Dat said he wants to raise the localization ratio to cut down production costs, but it is very difficult to find domestic enterprises that can provide high-quality parts and accessories.

To date, only four percent of the products’ content is made in Vietnam, mostly low-value parts such as packs or plastics.

A survey conducted by SHTP found that 40 percent of the businesses in the park have a low localization ratio of 0-10 percent.

Intel Products Vietnam also said it had found only 20 domestic accessory suppliers so far, but they can only provide low-value products that account for 10 percent of the total product value.

Intel has been expanding its production in Vietnam, which means it has high demand for domestic accessory suppliers to serve its production lines.

Once they are suppliers for Intel Vietnam, domestic enterprises would also have the opportunity to provide accessories to Intel’s factories around the globe, if they can offer competitive prices.