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Official Gazette

Friday, October 7, 2022

Policy digest July 2012

Updated: 16:40’ - 30/07/2012

* Businesses need corporate tax reduction to thrive: Legal experts from the Ministry of Planning and Investment (MPI) are calling for lowering of the corporate income tax rate to 20 per cent (from current 25 per cent) and value-added tax rate to 7 per cent (from current 10 per cent) and facilitation of businesses’ access to long- and medium-term capital sources, including foreign official development assistance (ODA).

Although the 25 per cent corporate income tax is not high compared with the 28-percent rate in other countries, Vietnamese businesses are paying higher taxes because numerous expenses are not deducted before tax payments. 

In addition to cutting taxes and loan interest rates (to 13-14 per cent), the Government should focus on keeping the prices of essential materials unchanged in order to help businesses reduce input costs on future investment. At present, costs for advertising and marketing are limited to only 10 per cent of businesses’ total turnover, while there is no limitation on this kind of expense in most countries.

They also proposed the Government to seek every measure to settle business bad debts and adopt policies to boost people’s spending and change their spending habits toward buying domestic products.

* Housing development fund models worked out: The Ministry of Construction has asked for government approval of the establishment of a housing development fund, which would help low-income earners, especially in urban centers, own or lease homes.

Wannabe home owners would be provided with a maximum loan doubling the amount they contribute to the fund, and have to repay the loan within 15 years at an annual interest rate between 6.5 and 8.5 per cent. If they do not wish to take a loan, they would receive 2 per cent interest on their contributions.

However, the feasibility of the fund remains questionable as it would require buyers to contribute 30 per cent of the property’s value and fully settle in five years. 

Pham Sy Liem, Vice Chairman of the Vietnam Construction Association recommended the Government to give priority to housing development companies investing in low-cost housing, and suggested the fund’s lending of 80 per cent of the property’s value, while low-income earners should contribute 20 per cent only. 

The fund is expected to become operational in 2013.

The second model of the housing fund would be named housing saving fund and provide loans to domestic medium-income earners to buy commercial houses. This fund will be formed from contributions of prospective home owners, the central budget’s one-time initial allocations and 30 per cent of profits from construction lotteries or all profits from housing lotteries issued by local lottery companies.

The fund would also take loans from social insurance funds. After obtaining the Prime Minister’s approval of this scheme, the Ministry will provide specific guidance on this source of loans.

* Telecommunications service monopolists to withdraw under new anti-market concentration regulation: From August 31, an entity will no longer be allowed to concurrently hold over 20 per cent of charter capital or shares of two or more telecommunications businesses doing business in the same telecommunications service market or market segment.

The Ministry of Information and Communications will periodically review the market to monitor compliance with the rule and revise the list of telecommunications services subject to this rule to suit the State’s telecommunications management policies.

This holding cap, according to market watchers, is primarily aimed to reduce unfair competition and monopoly in the mobile telecommunications service market. No further explanation is available.

This means that Vietnam Post and Telecommunications Group, which at present fully owns two mobile service providers, MobiFone and VinaFone, will have two choices: selling shares in MobiFone and VinaFone, or merging them together.

* New mechanism designed to lure FDI in the power sector: A better foreign exchange guarantee and an independent power distribution mechanism would be introduced to attract foreign direct investment (FDI) in the country’s power sector. These moves are part of a new strategy prepared by the Ministry of Industry and Trade, which proposes the Government to decide a “reasonable” foreign exchange guarantee ratio for foreign lenders to provide loans to major power project developers throughout the country, including O Mon 2 project in Can Tho city and 2,400 MW Vung Ang 3 project in Ha Tinh province.

The Government will select foreign investors to execute these projects after the build-operate-transfer (BOT) model.

Foreign investors are complaining that the current government guarantee of 30 per cent for annual foreign-exchange revenues earned by foreign-invested power plants under Document No. 1604/TTg-KTN of September 12, 2011, is too low for foreign lenders and project developers.

However, the foreign exchange guarantee is just a short-term measure to promote FDI in the power sector. In the long term, the country needs to establish an independent electricity distribution mechanism, enabling foreign investors to reach price agreements with the Electricity of Vietnam Group (EVN), thereby speeding up power development projects.         

* Government hardly to establish a new ministry to manage state groups: Answering questions of the press at the June regular Government meeting about whether a ministry or ministerial-level agency will be established under a decree revising Decree No. 132/CP, on the performance of the rights and obligations of the state owner to state-owned single-member limited liability companies, to independently manage these companies, Minister-Director of the Government Office Vu Duc Dam said that the Government has not been positive about the move, considering it irrational at this time, and would maintain specialized management of these companies by line ministries in closer coordination with the Ministry of Finance (MOF).

These companies would only be required to focus more on their core business lines and withdraw investments from such non-core business lines as banking, securities and insurance.  

Pending a better plan, different state corporations and economic groups engaged in different sectors should continue to be managed by line ministries with some more powers and ministries-salaried officers for financial supervision at these corporation and groups.

The MOF has proposed the Government to establish a general department for financial management and supervision of state-owned enterprises on the basis of renovating the existing Department for Financial Management of Enterprises attached to it.   

* Comprehensive stimuli called for boosting domestic production: Seven groups of measures to release stockpiled goods and stimulate production of domestic enterprises have been set forth by the Ministry of Industry and Trade, including agreements on barter among enterprises whose finished products are input materials of others.

Accordingly, those enterprises would be allowed to reach agreements on advance supply of material products and receipt of finished products in the form of sale joint-venture for common profits.

The Ministry will also disburse state budget funds for approved projects on marketing of construction materials, cement, steel and iron, sanitary ware and electronic appliances and adopt stimulus programs for some other goods in great stockpiles. For example, it recommends reduction of the car registration fee to 10 per cent in major cities to help the automobile industry, 100-per cent interest rate support for farmers purchasing farm produce processing machinery and small vehicles, and value-added tax (VAT) reduction for agricultural machinery.

It will also list more domestically available machines, equipment and materials for local administrations to tighten imports and prioritize state -funded projects using domestic goods in biddings.

It will consider reducing VAT for some greatly stockpiled consumer goods.      

* Remedies for non-performing loans recommended: The Vietnam Association of Financial Investors has recently recommended 10 solutions to halve non-performing loans (NPL) in the system of commercial banks without having to set up a costly national debt sale and purchase company.

These solutions require (i) commercial banks to take the initiative in increasing the NPL provision, regardless of whether their operation is profitable; (ii) commercial banks to adopt more rational wage and bonus policies, reducing unreasonable costs; (iii) commercial banks to turn NPL partly into medium-term bonds or shares; (iv) the State to increase as soon as possible the maximum foreign holding rate in the banking system to 40 per cent and that of a strategic foreign investor to 25 or 30 per cent of charter capital; (v) the State to allow some foreign banks with great financial strength and good governance to purchase ailing banks on a pilot basis; (vi) the State Bank to provide financial assistance for strong banks to purchase NPL of ailing banks, and eventually acquire these banks; (vii) the State to provide value-added tax and corporate income tax break for debt purchase and sale activities, with a view to stepping up the formation and development of a debt trading market; (viii) the State to provide corporate income tax exemption for those issuing corporate bonds, thereby facilitating the NPL securitization; (ix) the State to promptly devise and take measures to reinvigorate the real estate market, thereby reducing NPL in the construction, construction material and real estate business sectors; and (x) the State to restructure the budget distribution for 2013 in the direction of increasing budget allocations for infrastructure development.-

VNL_KH1 

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