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Official Gazette

Sunday, September 20, 2020

It’s time to settle corporate difficulties

Updated: 11:17’ - 28/05/2012

Vu Nhu Thang
Director of the Financial Strategy and Policy Institute, Ministry of Finance

Corporate difficulties

The macro-economic situation in the first four months of 2012 has seen positive developments, with many inflation-restraining solutions and macro-economic stabilization packages enforced. By the end of April, the growth of consumption ratio declined. The CPI rose 2.6% over December 2011. Trade gap reached USD 176 million, accounting for 0.53% of total export volume. The credit interest rate decreased, the liquidity of the banking system and foreign exchange reserve improved and the exchange rate was stable. The stock exchange showed a thriving sign. Manufacturing and trading activities further developed in such areas as ship building and repair, vegetable growing and harvest, and milk production. Total exports of the four months reached USD 33.4 billion, up 22.1%.

However, businesses are still struggling with a lot of difficulties as inventory and financial costs rise tremendously. Difficulties exist in construction; real estate; processing industry, car and motorbike assembling; iron and steel manufacturing; mechanics; aquaculture and husbandry; forestry; textiles; and catering services. Non-state sectors, small- and medium-sized enterprises (SMEs) and several large business groups are most affected.

The above difficulties are originated concurrently from the objective causes of the macro-economic situation as well as from the subjective causes of the corporate sector itself.

Aggregate demand has declined significantly due to the decrease of public investment and private consumption under the impacts of the tightened monetary and fiscal policies and high inflation.

The common difficulty of the world economy and the crisis of Euro public debts have affected more or less to traditional and potential markets and export activities of Vietnamese businesses.

The implementation of multilateral and bilateral commitments (i.e. gradual reduction of custom duties and the cutoff of non-customs duties) leads to pressures on the competitiveness of domestic businesses, which is still low.

The prices of input materials like petrol, electricity and gas have risen, while those of several main export items such as agricultural products drop.

Prolonged high deposit interest rates have made operational costs of businesses surge. Financial and corporate management is weak. Activities of numerous firms are dispersed in multi-channels and deeply depend on borrowing.

Timely solutions

On May 10, the Government issued Resolution No. 13/NQ-CP, introducing a comprehensive package of measures related to interest rate, credit composition, banking restructuring; government expenditures; tax relief; price supervision and administrative reforms. Those measures are consistent with the Government’s instructions and guidelines which have been implemented since January 2012. They reflect synchronous coordination of macro-economic policies, especially fiscal policy and monetary policy. Once low inflation is reliably and stably maintained, interest rates will decrease. This will enable firms to get easier access to bank credits at lower costs for the purpose of price reduction, production enhancement and competitiveness improvement. In principle, Resolution 13 has five main groups of solutions.

The first group of solutions is related to macro-economic management, including flexible monetary policy; credit restructuring; and credit supports for agriculture and rural areas, export production, supporting industry, and SMEs and labor-intensive businesses.

The second group is related to public expenditures, concentrating on the allocation of investment capital of the state budget, government bonds and national target programs and seeking of additional sources of domestic capital for ODA-funded projects. The Government permits the use of available funds (which have been ceased temporarily according to Resolution No 11/NQ-CP of February 24, 2011); and raising of VND 2 trillion for additionally financing the solidification of irrigation and drainage canals, construction of rural roads, pump stations for agricultural production, and infrastructure of aquaculture and rural trade villages. Another solution is to finance trade promotions in 2012 for enlarging export markets.

The third group of solutions is related to tax and fee, focusing on exemption, reduction and deferment of payment of several taxes, fees, land rent and land use levy for the purpose of reducing input costs and widening markets. Particularly:

a/ Deferring the payment period for six months for the payable VAT in April, May and June of 2012 for SMEs and labor-intensive businesses in several areas. With this solution, the amount of VAT extension per month is estimated around VND 4.1 trillion (or VND 12.3 trillion for the three months).

b/ Reducing 50% of the payable land rent of 2012 for trade and service businesses which pay rents annually and have to determine land rents for 2012 under Government Decree No. 121/2010/ND-CP dated December 30, 2010. This solution allows a reduced land rent amount of around VND 1.5 trillion (including a reduction of VND 700 billion applicable to production activities in 2012 as per Decision No 2093/QD-TTg dated November 2011).

c/ Deferring the payment period for nine months for corporate income tax which has been payable by 2011 and preceding years for SMEs and labor-intensive enterprises in a number of areas and enterprises manufacturing mechanical products for use as means of production; and for waterway transportation, steel and cement enterprises. 

d/ Exempting license tax for fishery and salt making households in 2012. 

e/ Deferring land use levies for up to 12 months since the due date as notified by tax authorities for financially difficult projects which are determined by local authorities.

f/ Postponing the application of road usage fee for seven months through December 31 this year in support of businesses (reduction of input cost) and people.

g/ Reducing 30% of corporate income tax in 2012 for certain businesses which are referred in Clause 1, Article 1 of Resolution No. 08/2011/QH13.

h/ Exempting presumptive VAT, personal income tax and corporate income tax in 2012 for owners of hostels for lease to workers and students; baby-sitting persons and households; and suppliers of workers’ meals on the condition that they keep stable rent rates  for leasing apartments and hostels, baby-sitting fee and meal prices as in 2011.

The fourth group of solutions focuses on price management, supervision and inspection to ensure prices, especially prices of input commodities, reflect market prices; and combat of smuggling, speculation, market manipulation and transfer pricing.

The last group deals with tax-related administrative procedures, aiming to hasten tax and custom administrative reform and cut 10-15% of compliance costs for citizens, entities and businesses.

Market rule respect  

In a market economy, there are firms joining in the market, then going bankrupt or shifting to other business fields. This creates a chance for firms to restructure their business and operations in line with the restructuring of the economy and industrial planning. The solutions referred in Resolution No. 13/NQ-CP show the market rule in terms of macro-economic stability, restrained inflation, favorable investment environment, business promotion and expansion of domestic and international markets. The main issue lies in the implementation step. To avoid delayed implementation, it is necessary to issue a circular guiding the implementation of Resolution No. 13 right in May, which must ensure all measures apply to right enterprises, comply with international laws and commitments and be transparent.-

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