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Policy digest (Vol.17 - No 204 August 2011)
The European Chamber of Commerce in Vietnam (EuroCham) recently published its 2011 white book on trade issues and recommendations, proposing amendments to current domestic regulations on trade-related issues, especially those concerning foreign businesses in Vietnam.

* Trade issues and recommendations published: the European Chamber of Commerce in Vietnam (EuroCham) recently published its 2011 white book on trade issues and recommendations, proposing amendments to current domestic regulations on trade-related issues, especially those concerning foreign businesses in Vietnam.

As reported by the Vietnam Economic Times, EuroCham’s key recommendations include abolishment or narrowing of the scope of the Corporate Income Tax Law on limit expenses businesses can pay for advertising in order to prevent them from paying double tax (corporate income tax on excessive expenses and value-added tax), issuance of specific guidance on validity of “existing” legal documents which are impossible to be regarded as effective or no longer effective, and revision of regulations on invoices.

Regarding the validity of thousands of legal documents which cannot be considered effective or no longer effective, e.g. questionable effect of a circular guiding a decree already replaced by another decree, which still exists because no circular is yet issued to supersede it, EuroCham recommended an amendment to the Law on Promulgation of Legal Documents requiring inclusion of specific provisions in every legal document on a definite time limit for issuing guiding documents, its validity duration from the date of issuance of guiding documents and specific titles of documents or provisions which cease to be effective.

As for the use of invoices, EuroCham recommended abolishment of some kinds of invoicing for “not-too-important” activities of businesses, narrower use scope of invoices, no longer requiring the use of invoices for return of goods, presentation of goods as gifts or donations, making of advance payments, payment of fines or travel fares, etc., reduction of items subject to compulsory invoicing, and permission of absence of signatures and seals of purchasers and sellers in invoices of small-value or individual transactions.

It also proposed the General Department of Taxation (GDT) to permit further use of peculiar invoice models previously approved by the GDT and encourage businesses to design by themselves model vouchers in substitution for invoices for their operations.

* Legal grounds for real estate investment trusts needed: In order to maintain the medium- and long-term monetary flows into real estates, alternative capital sources to make up for tightened banking credits are much sought after. Among others, real estate investment trusts (REIT) constitute an effective and stable channel for long-term real estate investors, especially individuals investing in income-generating real estates like department stores, apartments and offices for lease, and hotels.

According to Nguyen Van Hoang, chief of the investment section of DynaCapital Fund, in an interview with the Investment newspaper, Vietnam’s current law has no provision dealing with this form of investment. However, this term has been mentioned in the Ministry of Construction’s draft strategy for housing development through 2020 with a vision toward 2030.

The legal framework for this form of real estate investment would require introduction of some minimum standards on real estate valuation and owners, experience in fund and corporate management and construction and management quality, in order to secure profits for investors.

In addition to this form, he also suggested introduction of other forms of real estate investment currently existing in developed countries, including saving funds for housing and real estate re-mortgage funds, in order to mobilize idle capital among population and diversify real estate products. This move would, of course, require specific mechanisms to be promulgated, for example: a mechanism for securitization of real estate products with an appropriate structure of shareholders to avoid monopoly.

* Further guidance needed for conciliation of commercial disputes: In addition to court proceeding and arbitration, a commercial dispute may be peacefully settled through conciliation, as provided in Article 317 of the 2005 Commercial Law, with a conciliatory intermediary being an agency, organization or individual chosen by disputing parties.

However, the status and operation of conciliatory intermediaries have not yet been specified, and, in reality, the conciliation has not yet been recognized as an independent mode of dispute settlement.

As reported by the Vietnam Economic Times, deputy director of the Ministry of Justice’s Judicial Assistance Department Nguyen Thi Minh recommended prompt issuance of a decree guiding commercial dispute conciliatory intermediaries, encouraging the application of this dispute settlement mechanism prior to resorting to arbitration and court proceeding in order to avoid cost burden and harm for disputing parties.

Such decree should specify procedures for setting up conciliatory organizations, criteria for conciliators, and legal validity of successful conciliation minutes, which would become effective immediately and equivalent to arbitration awards. It should also provide that commercial arbitrations or tribunals may not accept for settlement successfully conciliated disputes and if any party fails to strictly execute the successful conciliation minutes, the other party may request the court to recognize this minutes. Such rulings would be legally equivalent to judgments.

Some experts additionally recommended another provision that an effective commercial dispute conciliation minutes may be invalidated if a party can prove a fraud or deceit of the other party or dishonesty of persons taking part in the dispute settlement.

* Better decentralization to raise efficiency of public investment: Minister of Planning and Investment (MPI) Bui Quang Vinh recently told the Vietnam Economic Times that hasty decentralization of powers to local administrations to decide on state budget-funded investment projects in their localities should be reconsidered in spirit of Government Resolution No. 11 in order to avoid waste and facilitate raising of funds for these projects from other sources, especially non-public sectors.

At present, investment policy, total capital, change in total capital and size of a project are all decided by local administrations while the state budget only allocates requested funds. This mechanism should be changed with the MPI notifying local administrations of plans on investment in their localities in the next 3-5 years, clearly indicating how to use resources for investment, including those mobilized from non-state sources, and the Government deciding what projects are important enough for investment. For example: small-sized seaports, which are in fact landing stages, can be studied and invested by localities for investment depending on their sizes and effectiveness, local budgets and possible funding sources, while large transshipment ports would be decided by the government to enjoy intensive state budget allocations.

In addition to large projects of national importance, local administrations should only be decentralized to choose projects of various sizes and capital needs while the government should decide on project size and capital need eligible for central budget investment and suitable to specific localities.

* Capital advancement to be accelerated for capital construction projects: As reported by the Investment newspaper, the Ministry of Finance (MOF) will permit the State Treasury to swiftly advance initial funds for provincial-level budgets to implement infrastructure investment projects and works the implementation of which needs to be speeded up and can generate revenues for refunding advanced capital, with a view to attracting investment capital from domestic and overseas businesses.

According to a regulation on capital advancement by the State Treasury currently drafted by the MOF, in case capital is advanced for accelerating the capital construction progress, provincial-level People’s Committees should notify in writing the MOF of projects requiring capital advancement, schedules of capital advancement and refund of advanced capital, total outstanding debts and commitment to use advanced capital for proper purposes and with effectiveness and refund it on time.

The advanced capital level must ensure that the outstanding debts do not exceed 30% of annual total capital construction investment of provincial budgets (or 100% for Hanoi and Ho Chi Minh City).

* Proposal on reducing the number of joint-stock banks: According to the Vietnam Economic Times newspaper, the Vietnam Association of Financial Investors (VAFI), the leading independent financial policy adviser in the country, has recently made several recommendations on the number of joint-stock banks, foreign-exchange market, foreign holdings in banks, establishment of financial, insurance or gold-trading companies, and gold market.

Specifically, VAFI proposed early adoption of a mechanism to reduce by 15-20% of the existing number of joint-stock companies through merger, consolidation, dissolution and nationalization (acquisition by state-owned joint-stock banks).

It suggested issuance of regulations to reduce entities eligible for foreign-currency loans, raise the compulsory reserve ratio for foreign-currency deposits and reduce the foreign-currency deposit interest rate applicable to the population to 1%/year.

It also recommended raising the rate of foreign holding in Vietnamese banks to 35% of charter capital from current 10% and permitting foreign investors to buy non-voting shares at 10% of charter capital.

It was of the opinion that the State Bank should be permit establishment of financial, insurance or gold-trading companies attached to credit institutions because these companies would be a redundancy for the banking system as well as the whole economy.

* Priority to be given to commercial banks servicing ODA-funded projects: The MOF is currently studying amendments to the mechanism of financial management of ODA-funded programs and projects, reported the Investment newspaper.

From September 1 this year, based on the list of banks eligible to act as service banks for these programs and projects publicized by the State Bank in coordination with the MOF, and written requests of commercial banks, agencies primarily responsible for negotiations on specific ODA treaties will consider, approve or select service banks for ODA projects and notify them to other negotiating parties for approval.

In case there are many banks qualified for an ODA project, the agency responsible for negotiating ODA treaties will prioritize banks experienced in rendering services, state-owned commercial banks and joint-stock commercial banks with controlling stakes held by the State.

* Sharp land rent reduction for businesses proposed: On July 27, director of the MOF’s Public Asset Management Department Pham Dinh Cuong told the Ho Chi Minh City Law newspaper that the MOF is working on a plan on addressing difficulties in the collection of land and water surface rents from businesses to be submitted to the Prime Minister for approval. This move is to facilitate the implementation of Decree No. 121/2010/ND-CP amending a number of articles of Decree No. 142 on collection of land and water surface rents.

According to the plan, the MOF will consider giving a 30-50% reduction of land rents in 2011 and 2012 for production enterprises, which suffer a land rent hike in 2011 and 2012, to respond to high bank loan interest rate pressure.

Businesses engaged in services and commercial activities are ineligible for the reduction.-

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