Evaluating the legal framework for accelerated depreciation tax incentives in Vietnam’s circular economy: A comparative analysis with ASEAN standards and developing countries
-
DOIhttp://dx.doi.org/10.21511/imfi.23(3).2026.06
-
Article InfoVolume 23 2026, Issue #3, pp. 66-77
- 11 Views
-
2 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Type of the article: Research Article
Abstract
The transition to a circular economy is a strategic priority in Vietnam’s sustainable development agenda, necessitating robust fiscal instruments to mitigate high capital cost barriers. This study aims to evaluate the legal and financial efficacy of accelerated depreciation mechanisms for sustainable investments in Vietnam by benchmarking them against ASEAN Taxonomy standards. Using a doctrinal legal analysis and a quantitative simulation of the Depreciation Tax Shield (DTS) via a Net Present Value (NPV) approach, the study quantifies the financial impact of various depreciation scenarios on a hypothetical capital expenditure.
The simulation-based evidence indicates that the current maximum depreciation coefficient of 2.0 provides a marginal tax shield benefit of only 2.86 billion VND per 100 billion VND of investment, which is approximately 20% lower than the tax shield values in neighboring countries that utilize initial investment allowances. Furthermore, the doctrinal analysis confirms a systemic misalignment between Vietnam’s project-based regulatory management and the asset-based classification logic of the ASEAN Taxonomy, creating significant barriers to rapid capital recovery amid risks of technological obsolescence. The study concludes that Vietnam should establish a synchronized national green asset catalogue and increase the depreciation coefficient to 3.0 for strategic equipment. Such reforms would not only optimize financial benefits but also directly enhance Vietnam’s competitiveness in attracting green foreign direct investment within the region.
- Keywords
-
JEL Classification (Paper profile tab)K34, Q58, O16, G11, G31
-
References36
-
Tables2
-
Figures0
-
- Table 1. Comparison of asset identification criteria: Vietnam vs. ASEAN taxonomy
- Table 2. Simulation results of the depreciation tax shield (DTS)
-
- ASEAN Taxonomy Board. (2021). ASEAN Taxonomy for Sustainable Finance: Version 1. ASEAN Taxonomy Board (ATB).
- ASEAN Taxonomy Board. (2023). ASEAN Taxonomy for Sustainable Finance: Version 3. ASEAN Taxonomy Board.
- Auerbach, A. J. (1982). Taxation, corporate financial policy and the cost of capital (NBER Working Paper No. w1026).
- Auerbach, A. J. (1983). Corporate Taxation in the United States. Brookings Papers on Economic Activity, 2, 451-513.
- Bhandary, R. R., Gallagher, K. S., & Zhang, F. (2021). Climate finance policy in practice: a review of the evidence. Climate Policy, 21(4), 529-545.
- Caldecott, B. (2017). Introduction to special issue: stranded assets and the environment. Journal of Sustainable Finance & Investment, 7(1), 1-13.
- Chirinko, R. S. (1993). Business fixed investment spending: Modelling strategies, empirical results, and policy implications. Journal of Economic Literature, 31(4), 1875-1911.
- De Mooij, R. A., & Ederveen, S. (2003). Taxation and foreign direct investment: a synthesis of empirical research. International Tax and Public Finance, 10(6), 673-693.
- Hall, R. E., & Jorgenson, D. W. (1967). Tax policy and investment behavior. The American Economic Review, 57(3), 391-414.
- International Energy Agency (IEA). (2024). Technology and Innovation Pathways for the Circular Economy. IEA Publications.
- Jorgenson, D. W., & Yun, K. Y. (2001). Lifting the Burden: Tax Reform, the Cost of Capital, and U.S. Economic Growth. MIT Press.
- Klemm, A. (2010). Causes, benefits, and risks of business tax incentives. International Tax and Public Finance, 17(3), 315-336.
- Le Ha, P., Bao, D., & Windle, J. (2024). Vietnamese language, education and change in and outside Vietnam. Springer Nature.
- Malaysian Investment Development Authority (MIDA). (2024). Guidelines for Tax Incentives for Green Technology. MIDA.
- Mercure, J. F., Pollitt, H., Viñuales, J. E., Edwards, N. R., Holden, P. B., Chewpreecha, U., Salas, P., Sognnaes, I., Lam, A., & Knobloch, F. (2018). Macroeconomic impact of stranding fossil fuel assets. Nature Climate Change, 8(7), 588-593.
- OECD. (2020). Developing Sustainable Finance Definitions and Taxonomies. OECD Publishing.
- OECD. (2021). Tax Incentives for Green Investment: A Threshold Analysis. OECD Publishing.
- Pfeiffer, A., Millar, R., Hepburn, C., & Beinhocker, E. (2016). The ‘2°C capital stock’ for electricity generation: Committed cumulative carbon emissions from the electricity generation sector and the transition to a green economy. Applied Energy, 179, 1395-1408.
- Polzin, F., & Sanders, M. (2020). Financing the low-carbon transition, a systematic article review. Global Finance Journal, 44, 100444.
- Popp, D., Vona, F., & Marin, G. (2020). The eco-innovation gap and the role of environmental policy. Environmental and Resource Economics, 77(4), 673-704.
- Saad, M., Tufa, A., & Assefa, G. (2024). A review of fiscal policy instruments for promoting a circular economy. Journal of Cleaner Production, 442, 140995.
- Sawhney, U. (2018). An analysis of fiscal policy in an emerging economy: Innovative and sustainable fiscal rules in India. Millennial Asia, 9(3), 295-317.
- Schulze Waltrup, R. (2025). The World Bank’s Eco-Social Policy Discourse. In Eco-Social Policy in the OECD and the World Bank: Global Governance and Social-Ecological Transformation (pp. 135-186). Springer.
- Schumpeter, J. A. (1942). Capitalism, socialism and democracy. Harper & Brothers.
- Singh, A. (2026). Decarbonizing emerging economies: Fiscal levers and institutional barriers. Journal of Sustainable Finance & Investment, 16(1), 45-68.
- State Taxation Administration of China. (2023). Announcement on the optimization of the weighted pre-tax deduction policy for R&D expenses.
- Thailand Board of Investment (BOI). (2023). Investment Promotion Measures for the Bio-Circular-Green (BCG) Economy. BOI Publications.
- Tyurina, Y. G., Alimova, N. K., & Gorbunova, N. A. (2023). Estimation of tax expenditures stimulating the energy sector development. Energies, 16(10), 4051.
- Unruh, G. C. (2000). Understanding carbon lock-in. Energy Policy, 28(12), 817-830.
- Volz, U., Beirne, J., Ambrosio, N., Lu, Y., & Zadek, S. (2020). Sustainable banking in ASEAN. SOAS University of London and WWF.
- Vũ, A. T. (2024). Multistakeholder partnerships to address plastic waste pollution through a circular economy framework in Vietnam: A meta-governance approach. Journal of Environmental Management, 352, 119990.
- Wang, T., Umar, M., Li, M., & Shan, S. (2023). Green finance and clean taxes are the ways to curb carbon emissions: An OECD experience. Energy Economics, 124, 106842.
- Wang, Y., Mayburov, I. A., & Ye, C. (2025). The Impact of Tax Incentives on the Innovative Capacity of Renewable Energy Enterprises in China. Journal of Tax Reform, 11(3), 592-611.
- World Bank. (2022). Green Tax Incentives: Regional Benchmarking and Implementation Framework. World Bank Group.
- Zainol Ariffin, Z., & Mas’ud, A. S. (2024). Towards an optimal green tax framework in Malaysia: An exploratory study. Management & Accounting Review (MAR), 23(2), 237-266.
- Zolkover, A., Mésonnier, J. S., & Monnet, C. (2024). Legal certainty and economic activity: A textual analysis of the ECJ jurisprudence. Journal of Law and Economics, 67(1), 125-159.


