Businesses advised to capitalize on tax incentives

Companies should find ways to make the most of the tax incentives offered by the Government, Nguyen Thi Cuc, head of the Vietnam Taxation Consulting Association, told a workshop in HCMC on Tuesday.

“The corporate sector should capitalize to the full on the tax incentives that the Government provides,” Cuc said at the “Taxing our way out of global recession” workshop.

The workshop covered topics relating to new provisions on value added tax rebates for specific services and extension of tax payment deadlines. It was organized by the British Association of Chartered Certified Accountants (ACCA) and the Vietnam Taxation Consulting Association.

Concerning personal income tax, the participants voiced concerns about determining and registering personal income tax in line with Official Notice 3473/TCT-TNCN dated September 8, 2010 of the General Department of Taxation.

Particular attention was also given to corporate income tax as well as the important new provisions on customs invoices and invoices made to order.

“Tax policies in a developing country like Vietnam should be simple,” said Chas Roy Chowdhury, head of UK’s ACCA Taxation Department.

Cuc said the latest move of the Government on giving rights of invoice order to enterprises was remarkable, as before only the Ministry of Finance could supply businesses with invoices causing many difficulties.

“This shows the Government is changing the way of administration and facilitating business,” she added.

Chowdhury said, “Companies need to be fully aware that in time of crisis, cash is the most important asset and they need to pursue debts effectively to make sure that customers pay their debts on time.”

Experts also stressed the importance of taxation consultants.

Cuc, who is the former deputy head of the General Department of Taxation, said there weren’t enough taxation consultants with enough know-how working in Vietnam to help the 200,000 small and medium enterprises to deal with the complicated taxation system here.

This is very dangerous if enterprises do not know thoroughly what they have to do and and how they can benefit, she said.

EuroCham confident in outlook, concerned about inflation

Corporate members of the European Chamber of Commerce (EuroCham) in Vietnam have expressed their strong optimism about the country’s economic outlook, but still keep their eyes wide for a possibly high inflation rate next year.

The EuroCham members underlined their both confidence and predictions about Vietnam’s economy in the first quarterly EuroCham Business Climate Index that EuroCham chairman in Vietnam, Alain Cany, released in HCMC on Wednesday.

Cany said most EuroCham members participating in the survey bore positive business confidence in Vietnam this year and beyond, giving a business climate index of 75 points on a scale from 0 point for the lowest confidence to 100 points for the highest level.

“The business confidence and outlook among European businesses in Vietnam remain extremely positive,” Cany said in his opening speech at the survey release function. He told the Daily that chief executives of more than 200 EuroCham member companies in Vietnam took part in the online survey early this month.

EuroCham executive board member Peter Born said the respondents held very positive views about investment plans next year. He demonstrated that 70% of them listed their outlook as ‘good’ or ‘excellent’, and 68% of surveyed companies planned investment increases in Vietnam.

More EuroCham members look to higher economic growth, as Born said 60% of the respondents expected Vietnam’s gross domestic product to expand by 6-8% in 2011, and this showed an overall confidence in Vietnam’s further economic expansion. Vietnam’s GDP is projected to increase by 6.7% this year.

The survey also indicated steadily or slightly increased recruitment among EuroCham members in Vietnam. When asked about their future employment, 31% of the respondents plan their workforce to rise by up to 20%, while 18% unveil a significant rise of over 20%.

Salary rises loom ahead, as most EuroCham companies forecast the salaries for both skilled and unskilled workers to be up by 5-10% next year. The vast majority is not expecting any kind of labor unrest or strikes in their particular business sector.

EuroCham members are also concerned about increasing inflation and the dong losing its value over both euro and U.S. dollar. Born said half of the surveyed European businesses expected inflation in Vietnam to be 10%, while 39% of them predicted inflation to reach 10-15% in 2011.

Vietnam is striving to curb this year’s consumer price index at 8%, but this revised target is seen almost impossible, as the General Statistics Office put the CPI rise in the January-October period at 7.58% compared to last December and 9.66% to the same period last year.

According to the EuroCham survey, most respondents anticipate a 5-10% depreciation of Vietnam dong against both euro and U.S. dollar.

Born summed up his remarks by saying that the overall response to this first quarterly business climate index survey showed a largely positive sentiment.

Cany said the EuroCham Business Climate Index was aimed to provide a simple mechanism to enable members and the general public to see how they perceive the business climate at any given moment in Vietnam.

The business climate index is an internet-based survey of questionnaires for EuroCham member companies to respond to, especially on current business issues and the area of policies that affect the foreign business community in Vietnam.

A hard role to uphold

The Vietnamese prime minister at the opening session on Wednesday of the National Assembly put the partial blame on the Government and relevant ministries for the collapse of the country’s shipbuilding giant Vinashin.

An 18-page report on the Vinashin debacle sent to lawmakers who are attending the year-end meeting of the legislature reveals the Government was fooled by Vinashin leaders. In many instances, Vinashin’s top management sent to the Government the debt-laden company’s reports that had been falsified to bloat earnings.

Vinashin is part of the broader picture about the problematic management of state-owned enterprises, particularly conglomerates and corporations.

“The role of the state as an administrator and an owner at state-owned enterprises in general and conglomerates in particular has exposed problems and failed to catch up with changes in a market economy,” says a National Assembly Economic Committee review of the Government report on social and economic performance. “Mechanisms for scrutinizing, supervising, auditing and managing corporate finance have proved to be inefficient.”

The state corporate sector has got a lot of handsome privileges from the Government, such as easy and cheap access to capital and resources like land and minerals, which are still a far-fetched dream for the non-state sector that consists of local private and foreign-invested firms.

With such favorable treatment, state-owned enterprises should have led the charge on the country’s development front as had long been desired by the authorities. Surprisingly, however, the state sector has had the lowest growth rate and created the lowest number of jobs, according to Saigon Tiep Thi newspaper.

The paper quotes statistics as indicating that the state corporate sector’s ICOR (Incremental Capital Output Ratio) – the extra capital needed to increase one unit of output – has kept rising over the years, now at between 8 and 14. Meanwhile, the private sector with limited incentives from the Government has proved to be more efficient with the ICOR index ranging from 3 to 5, and thus contributed significantly to the nation’s growth.

Nguyen Quang A, a high-profile economist, says half the total amount of investment in the economy is sucked into the state corporate sector. But this sector’s contributions to the economy have been largely insignificant despite the huge investment being funneled into state firms by the Government. What’s more, they have been steadily falling over the years.

Vu Thanh Tu Anh, director of research at the Fulbright Economics Teaching Program in HCMC, says in an article published in Thoi bao Kinh Te Saigon of Saigon Times Group this week that state-owned enterprisers generated 30% of GDP in 2001-2005 but the ratio dipped to 28% in 2006-2009.

Their contributions to GDP growth plunged from 33% in 2001-2005 to 19% in 2006-2009, Anh says, because the state corporate sector’s GDP growth slowed down from 7.6% to 4%, half the percentage achieved by the private sector.

The state corporate sector workforce has also declined over time. A survey by the General Statistics Office shows the combined workforce of state-owned businesses slid from 44% in 2001-2005 to 24% in 2006-2008, Anh says, adding that even worse, massive layoffs happened at these companies with new job creations dropping from minus 4% to minus 22% in the corresponding periods.

The role of this sector in the manufacturing industry has also tapered off though the Government has taken a vision to steer Vietnam toward an industrialized economy by 2020. “If we look at industrial production, a focus of Vietnam’s industrialization strategy, state-owned enterprises have a very humble role,” Anh says. “In 1995, the proportions of industrial production value in the state and private sectors were equal but changed to 20%-80% in 2009.”

The picture about the state corporate sector is pretty clear now. It has failed to live up to expectations that it leads the economy. Resources should have been channeled into where efficiency of capital use is greater, more jobs are generated, and productivity is higher.

Another high-profile economist, Le Dang Doanh, has cast doubt over the lead role of state-owned companies. Speaking to Tien Phong newspaper late last month, he proposed the phrase “The state economic sector upholds the lead role” be removed from the draft document to be presented at the National Party Congress slated for January next year.

Sticking to this ideal is stirring up controversy, especially at a time when Vinashin remains a hot-button issue, he says, and Vietnam needs real conglomerates, not those technically merged via administrative decisions.

The state has kept insisting on championing a level playing field for all, so it is a paradox to emphasize the lead role of the state corporate sector only, he says.

Meanwhile, an editorial of Thoi bao Kinh te Saigon suggests putting an emphasis on the role of the state in macro-economic policymaking rather than the lead role of state firms. The rationale of this suggestion is that in the aftermath of the global financial crisis, developed economies have acknowledged the important role of the state in economic regulation and control and in coping with market shortcomings to reduce market volatility bred by greed or asymmetric information.

“It is the state that, through tools such as taxes and investment incentives, can orient businesses in all sectors toward the fields that most benefit the economy,” says the editorial.