Policy digest June 2012
The World Bank’s Vietnam-based chief economic expert Deepak Mishra said at the Vietnam Business Forum (VBF) held late last month in Hanoi that the Vietnamese Government should consider adjusting some solutions provided in Resolution No. 11/2010/NQ-CP to firmly restore Vietnam’s macro-economic stability.

* World Bank suggests macro-economic stability solutions: The World Bank’s Vietnam-based chief economic expert Deepak Mishra said at the Vietnam Business Forum (VBF) held late last month in Hanoi that the Vietnamese Government should consider adjusting some solutions provided in Resolution No. 11/2010/NQ-CP to firmly restore Vietnam’s macro-economic stability.

Such adjustments should include harmonizing and balancing the fiscal policy and monetary policy (attaching more importance to fiscal policy tools); making and executing monetary policy primarily on the basis of market forces instead of administrative commands as at present (for example, imposing the interest rate cap); devising more detailed roadmap of public investment reduction and how to handle waste in public investments; and facilitating more effective and accurate audit of state-owned enterprises during the process of renewal.

For a long term, the World Bank, which blamed ineffective state-owned enterprises and public investments for the country’s worsened public debt situation, recommended the promulgation of a decree on medium-term investment limits, a new law on public investment, a planning law, amendments to the State Budget Law and a program on orientations for state-owned enterprise renewal, which would provide mechanisms of supervision and detailed schedules of economic restructuring.

In general, foreign economic experts warned a dear price of the hastened economic restructuring and suggested the restoration of economic stability every two or three years. To them, it is important not to sacrifice economic growth for immediate macro-stability.

* Local customs offices contribute to improving the customs law: The draft Customs Law (amended), which is planned to be put for public comment this month and for debate and passage at the fifth session of the XIIIth National Assembly (May 2013), has been complained by customs departments for its inconsistencies or overlaps with the Commercial Law, the Intellectual Property Law or the Import Duty and Export Duty Law in some provisions on manifest; processed, temporary imported for re-export, temporary exported for re-export goods; goods in-transit; goods for trade fairs and exhibitions; etc.

Customs offices have reported on difficulties in handling imports or exports subject to intellectual property protection measures and suspension of customs procedures due to inconsistencies between requirements of such protection and suspension provided in the Customs Law and the Intellectual Property Law.

Similarly, they recommended the Customs Law to be revised to have duty exemption provisions specific enough and consistent with Articles 10 and 11 of the Import Duty and Export Duty Law and relevant provisions of the Investment Law and the Science and Technology Law.

The Customs Law should also add measures consistent with those for administratively handling goods imported or exported as gifts, luggage of passengers on entry and exit provided in relevant laws, in order to facilitate customs’ handling in coordination with relevant agencies.

According to Deputy General Director of Customs Vu Ngoc Anh, amendments to the Customs Law would focus on three major issues: reform of customs procedures toward translation of international commitments into law, further boosting imports and exports; modernization of customs operations through application of information technology for e-customs clearance; and raising of effectiveness of customs management, smuggling and trade fraud prevention and combat.

Specifically, the Customs Law would provide complete legal grounds for modernized customs management, e-customs clearance and the national and ASEAN single-window mechanisms.

* Central Bank unveils legal improvements to promote e-banking: In order to facilitate bank card holders’ non-cash payment transactions, the State Bank has been directing card-switching companies in implementing the scheme on building a center for uniform card switching operations with the Vietnam National Financial Switching Joint-Stock Company (Banknetvn) as the core for connecting ATM/POS (point of sale) systems of member banks of these switching companies.

The State Bank also plans to finalize a scheme on development of an automatic clearing payment system for retail banking transactions, elaborate and apply standards on domestic payment cards, and develop microchip-printed bank cards in the country.

In 2013, it will finalize and submit to the Government a decree amending Decree No. 161/2006/ND-CP on cash payment, and documents guiding this decree and prescribing charge rates for cash payment transactions. It will coordinate with relevant agencies in introducing tax incentives and the like for non-cash payment, formulating a mechanism for tax fraud and evasion inspection of entities which are not interested in via-POS card payment.

In 2014, it will pilot the application of modern payment modes and instruments in some rural regions and start building the automatic clearing payment system for retail bank transactions.

* Financial companies at the restructuring crossroads: At present, a total of 18 financial companies, including six wholly foreign-owned ones specializing in consumer credit, are raising capital for projects of state business groups or corporations which own them or hold more than 25 per cent of their equity capital. In the context of restructuring state-owned groups and corporations which requires reduction of state capital investment in finance, banking and insurance, these financial companies surely face challenges in reducing credit services and investment in sectors other than state groups’ or corporations’ main business lines and expanding clients outside these groups or corporations, and should be restructured too.

According to Vu Viet Ngoan, chairman of the National Financial Supervision Committee, in the third quarter of the year, a specific plan on restructuring financial companies would be disclosed. Such a plan offers two feasible restructuring options: first, financial companies may continue operating as purely financial companies which will receive supports from parent groups or corporations to provide more specialized services or develop into public companies with broader operation and provide more services to diverse clients outside these groups or corporations; and second, they may merge into a commercial bank (for small-sized financial companies) or consolidate with commercial banks into a new institution (for large-sized financial companies) in order to have advantages in financial capacity (from financial companies) and networks, technological system, service products and clients (from banks).

* Sales promotion, advertising cost limit proposed to be eased: Most countries in the world have long treated advertising, sales promotion and marketing expenses of their enterprises, especially small- and medium-sized ones, as reasonable business expenses or, in other words, essential investments for these enterprises’ business operations, and therefore, impose no limits on these expenses.

At the recent Vietnam Business Forum (VBF), once again the business community recommended the removal of the limit on sales promotion, advertising, marketing, brokerage commission, guest reception, conference and payment discounts (currently 10 per cent of total reasonable business expenses) for enterprises to have much lower taxable expenses when calculating corporate income tax.

Though the Ministry of Finance has recently lifted the limit on some expenses of advertising nature, such as expenses for product display and introduction, organization of exhibitions and showrooms, and employee bonuses, and therefore treats them as reasonable and valid ones, it still maintains the 10-per cent cap on other expenses aforementioned.

Foreign economic experts at the Forum warned that foreign transnational corporations would find Vietnam less attractive and consider withdrawing their investment if the country delays lifting the cap to conform to international practices.

Pending the passage of the amended Corporate Income Tax Law, which is scheduled to be submitted to the National Assembly next year, VBF’s tax experts proposed the Ministry of Finance to re-categorize and exclude some advertising and sales promotion expenses from the list of expenses subject to the 10-per cent limit under the current Law, namely expenses for organizing product promotion workshops, providing product use instructions, printing leaflets and user’s manuals, and setting up product displays or showrooms. They also recommended revision of provisions of Circular No. 130/2008/TT-BTC and Circular No. 18/2011/TT-BTC on identification of reasonable expenses related to goods damaged or spoilt by objectives causes.

* City requests operating duration extension for FDI enterprises with expired investment licenses: From July 1, 2011, the deadline for re-registration by foreign-invested enterprises with investment licenses granted before July 1, 2006, under the 2005 Enterprise Law, Ho Chi Minh City People’s Committee had to refuse accepting applications for re-registration of 784 foreign-invested enterprises based in the city (one-fifth of the total number of licensed foreign-invested enterprises), causing difficulties to them and affecting foreign investment in the locality.

Their licenses, with a five-year validity duration, expired while they fail to make operation re-registration, though they are mostly effectively operating ones and wish to continue operating in the city. The city administration, therefore, asked for temporary permission for these enterprises to stay in business.

This may be effected in two directions: first, these enterprises may have their investment licenses somehow renewed and continue enjoying incentives provided by law without having to make re-registration; and second, these enterprises may be considered for investment licenses with new names like newly established ones and business lines already stated in old licenses and will no longer enjoy incentives.

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