Policy digest August 2012
Some amendments to the national target program on building new rural areas during 2011-2015, with a vision toward 2020, promulgated together with Prime Minister Decision No. 491/QD-TTg of 2009, have recently been finalized and proposed by the Ministry of Agriculture and Rural Development, to the Government for approval.

* Rural labor structure, income targets to change: Some amendments to the national target program on building new rural areas during 2011-2015, with a vision toward 2020, promulgated together with Prime Minister Decision No. 491/QD-TTg of 2009, have recently been finalized and proposed by the Ministry of Agriculture and Rural Development, to the Government for approval.

The rural labor structure criterion would be changed to ensure a low unemployment rate of working-age rural laborers at under 10 per cent. The new average per-capita annual income in rural areas would be VND 22 million in replacement of the existing target that such average income will be 1.4 times the current level of the locality.

The current target that under 30 per cent of working-age rural laborers will work in agriculture, forestry and fishery and the remaining rural population will shift to non-agricultural sectors for higher incomes is now considered unsuitable to many agriculture-focused communes and conflicting with local people’s needs because in these communes the proportion of agricultural laborers is large but their incomes are high, at over VND 40 million per person per year.

The adjusted living standard targets, including those on rural roads, housing, education, social safety, and incomes, would be more reasonable and clear enough for local administrations to work out their own plans.-

* Corporate income tax and value-added tax reforms in focus: Deputy Finance Minister Vu Thi Mai recently told the press that the Ministry will speed up efforts to reform tax policies, especially corporate income tax (CIT) and value-added tax (VAT), under a national strategy for tax reforms for the next decade.

Tax Policy Department deputy director Nguyen Van Phung said that from to 2020, appropriate tax policies should aim to boost domestic production and exports, promote investment in difficulty-hit regions, facilitate economic restructuring and stabilize living conditions.

Many foreign economic experts have suggested the current CIT rate of 25 per cent should be further lowered (for example, to under 20 per cent), though it had been slashed from 28 per cent, to boost domestic production and lure foreign investment.

According to them, Vietnam should also consider raising the VAT rate (for example, to 16-18 per cent), drawing up a more reasonable list of goods eligible for VAT exemption and giving other incentives, in order to compensate for budget deficits and ensure the best tax efficiency.-

* Foreign-currency loan restrictions delayed: The State Bank of Vietnam (SBV)’s proposal for tightening the provision of foreign-currency loans is likely to be delayed until next year. Besides, exchange rates would be kept stable and the SBV would continue to contain their movement within 3 per cent this year, with a view to helping foreign-currency borrowers avoid risks.

SBV Governor Nguyen Van Binh has promised that Circular No. 03/2012/TT-NHNN of March 8, on foreign-currency lending by credit institutions and foreign bank branches to resident borrowers, which requires borrowers to demonstrate they have sufficient foreign currency to repay the loans, will take effect only when the economy sees improvements.

One of the reasons for the delayed application of the new regulation is that it forces domestic businesses, especially exporters, to borrow in Vietnam dong at high interest rates, thus raising their production costs and affecting their competitiveness, or to buy foreign currencies from banks instead of borrowing like they do at present.

Benefiting from the delay, lenders can also earn profits from providing short-term loans to pay for imported fuels and manufacturing projects in prioritized sectors if it is expressly approved by the SBV, while the annual interest rate cap on foreign-currency deposits now is only 2 per cent compared to average 4.5 per cent per for foreign-currency loans.-

* Central bank calls for higher foreign holdings in commercial banks: The SBV has asked the Government to allow foreign investors to buy more shares in domestic commercial banks. SBV Governor Nguyen Van Binh said that increasing foreign holdings of commercial banks would be a solution recommended in the scheme on restructuring of the banking system as there was a possibility of selling more stakes at better prices to foreign investors.

Some economists argued that because of the bad governance of ailing commercial banks, giving more room for foreign investment should be carried out carefully. However, if restructuring these banks did not work, the SBV should sell them to foreign investors.

Vice Chairman of the Hanoi Young Business Association Tran Anh Vuong said that if the country loosened its cap on foreign ownership of commercial banks, huge amounts of foreign capital would be attracted to the sector.

Foreign investors are also awaiting government moves relating to the purchase of non-performing loans and increasing stocks available for foreigners.-

* Specific land auction rules drafted to limit decoy bids: The Ministry of Justice and the Ministry of Natural Resources and Environment will work together in compiling a joint circular to uniformly guide the management of auctions of land use rights, a kind of public asset, for land lease or land allocation with collection of land use levies, in furtherance of Prime Minister Decision No. 17/2010/QD-TTg providing regulations on auction of assets, which took effect on July 1, 2010.

According to Justice Minister Ha Hung Cuong, such violations in land use right auctions as decoy bids and unfair competition have been curbed since the enactment of Decision No. 17/2010/QD-TTg. However, at present land use right auctions are largely carried out by district- or provincial-level auction councils without professional auctioneers and authorized supervisory bodies, and the responsibilities of auctioneers are vaguely defined.

The new circular would require provincial-level Justice Departments to provide training to improve professional skills of auctioneers and create physical conditions for operation of public auction service providers.

The reality that auction participants tend to prefer private asset valuation and auction companies that offer commissions for auctioneers while asset auction centers of provincial-level Justice Departments cannot would also be addressed by the new circular.-

* Number of state-owned enterprises to shrink sharply: The Ministry of Transport and the Ministry of Industry and Trade, which have the most state-owned enterprises in the country, are expeditiously working on their plans to restructure and prune their attached enterprises and step up withdrawal of their investments in non-core business lines.

According to deputy director of the Ministry of Finance’s Business Finance Department Le Hoang Hai, the Ministry of Transport will focus on restructuring Vietnam Airlines and Vietnam Railway Corporation in addition to Vinashin and Vinalines groups and reorganizing other wholly state-owned enterprises before 2015.

During 2012-2015, the Ministry of Industry and Trade will make its enterprises focus on their core business lines, including petroleum, electricity, coal and minerals, steel, chemicals, paper, textile and garment, food industry, cigarette, liquor, beer and beverages.

The total number of state-owned enterprises is expected to be reduced from current 1,300 to around 600.-

* Local administration asks for higher autonomy in licensing foreign investment: Ho Chi Minh City People’s Committee has recently proposed the Ministry of Planning and Investment (MPI) to allow it and the administrations of other major cities to decide on licensing foreign investment projects in case it receives no reply or approval from the MPI regarding these projects after a prescribed time limit.

Regarding investment conditions not yet specified in Vietnamese laws or treaties to which Vietnam is a contracting party but once examined in writing by a specialized management agency for a project operating in a similar sector, the municipal administration suggested that it should be allowed to examine these conditions based on available examination documents without having to consult relevant ministries and agencies before granting or modifying investment certificates or licenses.

It also proposed the MPI to adopt flexible tax policies to support investors meeting with difficulties in implementing their projects and mete out penalties against those delaying project implementation.-

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