Policy digest December 2011
New policies are needed to attract foreign direct investment (FDI) in the coming years, said Dr. Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), at a seminar to evaluate the effectiveness of FDI recently held in Ho Chi Minh City.

*Future goals of foreign invest-ment recommended: New policies are needed to attract foreign direct investment (FDI) in the coming years, said Dr. Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), at a seminar to evaluate the effectiveness of FDI recently held in Ho Chi Minh City.

These policies should focus on quality and efficiency, sustainable development based on building of a low-carbon economy, effective technology transfer, and training of highly skilled laborers.

He said Vietnam should switch to attracting FDI from transnational corporations of Japan, the United States and member nations of the Organization of Economic Cooperation and Development (OECD) instead of FDI largely from small- and medium-sized Asian enterprises as at present. This would help the country not be left behind in the course of implementing its commitments for accession to the World Trade Organization (WTO) and the free trade commitments with the ASEAN, China and Japan starting from 2011 and not become a “technology dumpsite” of the world.

He also proposed higher incentives for hi-tech industries and limitations on labor-intensive foreign-invested projects in the textile, garment, leather and footwear sectors and requirements on domestic partners in large foreign-invested projects to commit to supplying sufficient highly skilled laborers.

Also at the seminar, deputy director of the Ministry of Planning and Investment’s Foreign Investment Agency Nguyen Noi informed that the Ministry has been tasked to draft a scheme on evaluation of FDI and recommendation of policies and measures to increase effective FDI during 2011-20, and submit it to the Prime Minister for approval in the second quarter of 2012.

The scheme would require localities to reject potentially polluting projects, lowly capitalized projects requiring large land areas and likely to operate ineffectively, projects applying obsolete technologies or consuming large volumes of natural resources or energy, and to focus on hi-tech, clean, support industry and export production projects.

Some other participants suggested the issuance of discrete lists of sectors and localities eligible to enjoy investment incentives and a unified definition of “new projects” for investment incentives under the Investment Law to replace current “establishments newly founded under projects” for tax incentives under the Corporate Income Tax Law.

* Capital transfer tax on foreign securities investors proposed to be called off: In a written proposal sent this month to the Ministry of Finance (MOF), the Vietnam Association of Financial Investors (VAFI) recommended revision to some irrational provisions on securities tax currently applicable to foreign investors that do not establish legal entities to represent them in securities trading in Vietnam.

In its proposal, VAFI said the distinction between securities transfer and capital transfer (share transfer within joint-stock companies) was not well grounded. Such distinction resulted in an unreasonable discrimination between foreign investors (without Vietnam-based companies) that transfer shares in non-public joint-stock companies and liable to pay tax on common capital transfer (at the rate of 25% of purchase price-sale price difference) and entities that transfer shares in public companies governed by the securities law and liable to pay tax on securities transfer (at the rate of 0.1% of turnover).

VAFI secretary general Nguyen Hoang Hai recommended the abolishment of the distinction and the tax rate of 25%, saying that under Article 25 of the Securities Law, a public company differs from a non-public company only in the number of shareholders and they are both in essence joint-stock companies, and in fact transfer of shares in both companies is securities transfer.

He also called for revising Vietnamese securities tax regulations in conformity with the universal international practice that income tax imposed on securities transfer is a presumptive tax calculated on the total selling price.

The capital transfer tax rate of 25% applicable to foreign investors should be imposed only on transfer of contributed capital portions under joint venture or investment cooperation contracts.

* Banking system restructuring in the spotlight: State Bank of Vietnam (SBV) Governor Nguyen Van Binh told the press on the sidelines of the Government’s November regular meeting that a banking system restructuring scheme is still in the works but in fact it has been implemented regarding accelerated equitization of commercial banks into public businesses.

The scheme is set to assure the solvency of credit institutions by encouraging and facilitating acquisition (through the stock market) or freewill and lawful merger or consolidation of ailing banks into larger, more efficient ones.

In the first quarter of 2012, SBV will classify existing banks and credit institutions into three major groups: those with a healthy financial status for normal operation until 2015 which account for a total 80% of the total banking market share, those which can sustain normal operation and hold around 15% of the market share, and ailing ones which hold under 5% of the market share and need emergent liquidity aid.

From the second quarter of 2012 to the end of 2013, the restructuring of ailing banks will be completed without adversely affecting the system safety, macro-economic stability and interests of depositors. During 2014-15, efforts will be concentrated on improving the banks’ adequacy ratios and conformity with international standards and building one or two banks up to the regional caliber.

According to the SBV Governor, during 2011-15, seven groups of measures will be deployed in the whole system, including accelerated equitization of state-run commercial banks, settlement of non-performing debts, reduction of non-core business lines and ineffective branches, application of new governance standards and modern risk management systems in conformity with international practices, renewal of internal inspection, control and audit systems, restructuring and development of stock, bond and insurance markets, etc.

* Impractical customs regulations dug out in preparation for customs law revision: Hanoi and Ho Chi Minh City customs authorities met this month to discuss problematic or inadequate regulations on customs procedures.

Many customs officers said there remain saw ambiguities in current provisions on the validity duration (15 days) of customs declarations before cargo shipment arrival which were taken advantage of by some customs declarers to shirk customs inspection upon a change in duty rates or import and export policies or detection of a fraud (by delaying carrying out customs procedures for invalidation of declarations).

Besides, regulations on grant of declaration registration and customs channeling 15 days in advance means permission for customs clearance before the arrival of imports or exports at ports and might be used for importing or exporting banned or infringing goods.

They proposed addition to the customs law of provisions on temporary registration of customs declaration information at least seven days before the official registration, which can only be made upon arrival of imports or exports at ports, and disallowance of declaration cancellation without customs consent.

In order to avoid backup at ports, they suggested a new provision that requires customs declarers to complete customs procedures and transport cargoes out of ports within 30 days after their arrival.

They also urged relevant ministries to issue documents to guide new laws and regulations concerning import of foodstuffs, animal feed, cosmetics, cell phones, wines and cars with nine or fewer seats.-

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