Policy digest January-February 2012
The 2005 Enterprise Law already separates the function of business administration from that of state management of state-owned enterprises, which, if not yet equitized, are all required under Decree No. 25/2010/ND-CP to be transformed into single-member limited liability companies.

* A law needed for effective management of state capital in enterprises: The 2005 Enterprise Law already separates the function of business administration from that of state management of state-owned enterprises, which, if not yet equitized, are all required under Decree No. 25/2010/ND-CP to be transformed into single-member limited liability companies. However, while the state management of these companies can be normally performed under this Law, no law is in place to regulate the administration of their business operations, causing confusion to authorities when dealing with affairs related to their use of state capital on the behalf of the State.

As reasoned by legal expert Le Van Tu on the weekly Saigon Economic Times, though the said Decree has several provisions concerning this issue alongside some regulations on post-equitization administration of state companies, a law is still needed to provide general principles and serve as a legal ground for establishing an independent official apparatus to assist the State, as the sole owner-investor, in managing business operations of these companies as long as the State invests capital in them.

He also said the present perception that either the Prime Minister (or People’s Committee chairpersons for locally managed companies) or the State Capital Investment Corporation (SCIC) can act as the “boss” responsible for all business operations of these companies was unreasonable because the Prime Minister represents a state administration body while SCIC is merely an enterprise assigned to trade in state capital.

* For better coordination in foreign labor management: Deputy Prime Minister Nguyen Thien Nhan recently called for stricter management of foreign laborers in Vietnam through issuing specific regulations on their employment conditions and status, according to the Vietnam Economic Times.

He urged relevant ministries assigned by the Government under Decree No. 34/2008/ND-CP and Decree No. 46/2011/ND-CP to provide guidance related to foreign workers. The Ministry of Health would issue forms and define agencies competent to grant health certificates to foreign laborers. The Ministry of Industry and Trade would guide how to identify foreign laborers transferred within an enterprise in a sector specified in Vietnam’s commitment of services with the World Trade Organization (WTO). Meanwhile, the Ministry of Public Security would coordinate with the Ministry of National Defense in granting permission for foreigners to enter Vietnam for various purposes, including work.

In reality, employers in Vietnam can easily circumvent domestic regulations and requirements to employ low-cost unskilled foreign laborers without labor contracts or even in the form of expert hiring.

The Deputy Prime Minister suggested a seminar to be held in the second quarter this year to review one year’s implementation of the Prime Minister’s directive on foreign labor management and share experiences of localities and enterprises and enhance coordination among the ministries in the management of the labor market, grant of work permits, immigration and public security management, and handling of violations.

* Plunging foreign direct investment prompts policy change: Foreign direct investment (FDI) in January was reportedly equal to only 2.5 percent of last January’s figure. This was seen by some experts as an early warning for the investment promotion agency to revise FDI attraction strategies.

According to the Foreign Investment Agency, from this year, FDI attraction will focus on infrastructure, green and environment friendly industries, support industries, projects to help Vietnam join the global production network and value chain, sectors with a competitive edge, and hi-tech industries.

Justin Wood, an economic expert from the Economist, believed these FDI strategies would help foreign investors to figure out specific moves in making investment in the country. But he warned Vietnamese authorities about difficulties they might encounter when receiving more leading transnational corporations with high technology and abundant capital and governance experience from Japan, the United States and member nations of the Organization of Economic Cooperation and Development (OECD), and when facing competition from neighboring countries, like Myanmar. He also suggested more explicit evidence of a better legal environment and political willingness of Vietnamese administrations, in addition to positive signs of the country’s macro-economy.

According to Minister of Planning and Investment Bui Quang Vinh, to achieve the target of USD 15 billion of FDI in the context of decreasing FDI in non-production sectors, which is believed to have led to greater trade deficit, the Ministry will design and provide more flexible incentive and support packages, under agreements with transnational corporations, to attract their selective investments in hi-tech and high value-added industries, the domestic production network and supply chain linked with manufacturing chains of these corporations.

The Ministry has been assigned to elaborate a scheme on evaluation of FDI and propose policies and measures to increase effective FDI during 2011-2020, and submit it to the Prime Minister for approval in the second quarter this year, the minister said.

* Trade counselors to play more active role in promoting Vietnamese exports: At a recent conference of Vietnamese trade counselors, participants pledged to contribute more to promoting Vietnamese products in foreign countries and join overseas Vietnamese trade bureaus in helping Vietnamese businesses register with foreign authorities the origin, quality and hygiene standards of Vietnamese products, especially rice, fruits, handicraft articles, fisheries and electronic household appliances.

They recommended establishing a mechanism for direct and regular exchange of information between business or commodity line associations and trade affairs bureaus, especially those in the traditional markets like China and the EU, in order to help Vietnamese businesses deal with technical barriers and seek incentive mechanisms under free trade agreements (FTA) with these markets.

Minister of Trade and Industry Vu Huy Hoang called upon Vietnamese trade bureaus and counselors, chief representatives and commercial attaché overseas to take the initiative in conducting trade promotion activities, regularly contacting and assisting businesses and their overseas outlets in grasping multilateral and bilateral trade or economic cooperation agreements and host countries’ policies with possible effects on Vietnamese exports, and updating helpful information on foreign market demands and foreign consumer tastes for Vietnamese commodities.

* Government bond proceeds allocation to be phased out: The Ministry of Planning and Investment is working on a plan on government bond capital allocation in 2012 for adoption by the National Assembly Standing Committee in its February or March meeting.

Under the plan, some VND 220 trillion will be raised through government bonds in the next four years (2012-2015), only to meet around 36% of capital needs of Prime Minister-approved important projects, prioritizing on-going projects.

However, the Ministry will propose the National Assembly to permit this capital amount to be allocated according to each investment phase of 3-5 years instead of the current annual allocation regime to suit socio-economic development plans. Projects that lack capital will be allowed to seek funds from other sources to avoid construction delay.

Insurance business restructuring put forward: Despite a high growth rate of turnover from the insurance business in the last decade (an annual average of 18.5 percent), the insurance sector will be restructured to pick out ailing businesses for merger into profitable larger companies or for bankruptcy under the insurance business law.

Under a restructuring scheme currently elaborated by the Ministry of Finance, insurance businesses will be divided into four groups subject to different management and surveillance regimes. Group 1 will include insurers with adequate solvency based on profitable operation. Group 2 will consist of those that remain solvent but face difficulties in operation (high operation costs, high insured indemnity rate or unprofitable operation in two consecutive years). Group 3 will cover those in clear danger of insolvency, and group 4 will include those that fall insolvent and must be placed under special control and required to apply special measures under the insurance business law.

* Real estate market information and forecast center Needed: As proposed by the Construction Department of Ho Chi Minh City, a center should be established to publicize official and objective information on real estates, especially planning, market prices, land auction information and real estate projects, perform the market watch and provide reliable forecasts, in order to help the sector develop healthily and avoid speculation and overpricing.

Such center may have local chapters to provide market information and help local administrations formulate land and housing policies and develop local real estate markets.

As reported by Phap luat thanh pho Ho Chi Minh (Ho Chi Minh City Law) newspaper, the Construction Department also suggested local administrations hire real estate companies, state-run or private, to provide consultancy or directly make housing plans and plans on land recovery for accumulation of clear ground areas which will be auctioned to recover investment capital and earn profits for the state budget.

It also proposed progressive taxation of whole real estates (both land and attached houses) instead of current taxation of land only, with a view to inhibiting real estate speculation.

* Tax reform aims high procedure convenience: According to Finance Deputy Minister Vu Thi Mai, the tax sector is set to strive for the targets that by 2015 seven out of every 10 taxpayers will be satisfied with services of tax offices and Vietnam will be in top five countries in Southeast Asia with the most convenient tax procedures. These targets for 2020 are eight out of 10 taxpayers and top four.

To achieve these targets, the Ministry of Finance has put forward a roadmap for revision of current tax laws. In 2012, it will submit to the National Assembly the revised Personal Income Tax Law. In 2013, in addition to the revised Import Duty and Export Duty Law and the revised Corporate Income Tax Law, it will propose the National Assembly to upgrade the Ordinance on Charges and Fees into a law. In 2014, it will revise the Value-Added Tax Law and the Excise Tax Law.

It will also continue to revise the Tax Administration Law and relevant guiding documents in order to make tax procedures more taxpayer friendly and help taxpayers supervise tax officers in providing services.

* Foreign pharmaceutical companies long for domestic market access: In an attempt to attract more high-quality foreign investments, the Government has spared no efforts to lift inappropriate legal barriers. However, these efforts are probably not enough in some sectors, especially in the context of realization of the WTO accession national commitments.

Recently, the chemical and pharmaceutical group of the European Chamber of Commerce in Vietnam (EuroCham) proposed abolition of some regulations on import pharmaceutical prices which have led to considerable differences between prices of pharmaceuticals distributed from overseas by foreign companies and those of domestic pharmaceutical companies. For example, the application of CIF prices as reference prices to imported pharmaceuticals is compulsory whilst importers have no right to distribute these pharmaceuticals in Vietnam and have to sell them to domestic companies, leading to increased prices.

Given Vietnam’s WTO commitments, the group proposed grant of the commercial right for foreign-invested companies, provision of specific guidance on establishing wholly foreign-owned pharmaceutical companies in Vietnam which may import finished pharmaceuticals into Vietnam, and application of a mechanism for determining reference prices based on commercial prices (PTT mechanism).

At present, the extension to pharmaceutical companies of the rights to trade in, import and export pharmaceuticals is pursuant to Decree No. 23/2007/ND-CP of February 12, 2007, and the Trade Minister’s Decision No. 10/2007/QD-BTM of May 12, 2007. However, the Health Ministry’s Circular No. 06/2006/TT-BYT of May 16, 2006, does not allow foreign-invested companies to import finished pharmaceuticals into Vietnam.

* Prioritized channeling of official development assistance into projects in eight fields: Under the orientations for attraction, management and use of official development assistance (ODA) and other preferential loans of international donors during 2011-2015, which have recently been approved by the Government, ODA sources and preferential loans will be used first of all for important projects facing difficulties in calling for private capital sources and commercial loans. In this regard, ODA will be considered a supplementary capital source for encouraging the private sector to invest in infrastructure in various forms and modes, including public-private partnership (PPP).

Important projects eligible for ODA are those on: (i) building of complete, large-sized and modern infrastructure facilities; (ii) development of social infrastructure in health, education, training and social security; (iii) training of high-quality human resources for development requirements; (iv) development of agriculture and rural areas in combination with hunger eradication and poverty reduction; (v) building of the legal system and institutions of the socialist-orientated market economy; (vi) protection of the environment and natural resources, response to climate change, sustainable development and green growth; (vii)promotion of investment, commerce and production and business sectors; and (viii) provision of supports for economic structuring and job creation in localities with great difficulties.-

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