Policy digest (Vol. 18 - No 207 November 2011)
Under Prime Minister Directive No. 1792/CT-TTg of October 15, nearly two thirds of investment projects approved to be funded with government bond proceeds for the next four years will not be allocated these proceeds for implementation.

*Government bond-funded projects to slow down due to capital scarcity: Under Prime Minister Directive No. 1792/CT-TTg of October 15, nearly two thirds of investment projects approved to be funded with government bond proceeds for the next four years will not be allocated these proceeds for implementation.

Minister of Planning and Investment Bui Quang Vinh said at a recent meeting with ministers and sector and local leaders that only some VND 180 trillion will be raised through government bonds for public investment projects in the next four years, prioritizing only ongoing projects scheduled to be completed in 2011 or 2012. That means no new projects will be licensed or allowed to start in that period.

He warned that persons who sign decisions to implement projects with unidentified investment needs and sources or delayed implementation must bear personal responsibility.

Under a National Assembly resolution, only 40 government bond-funded projects are allowed to start in 2011. However, in reality more than 300 have been commenced, according to statistics of the National Assembly’s Finance and Budget Committee, leading to a great overspending of the state budget.

*Five-year tax reform plan unveiled: The Ministry of Finance (MOF) has approved its tax reform plan for 2011-2015, which targets more effective inspection of tax obligations, and its tax inspection plan for 2012, focusing on investigating suspected cases of transfer pricing for tax evasion, Bui Van Nam, general director of the General Department of Taxation told Thoi Bao Kinh Te Viet Nam (the Vietnam Economic Times).

The MOF will reform value-added tax (VAT), corporate income tax (CIT) and personal income tax (PIT), according to the plan.

VAT reform will broaden tax bases by slashing the number of commodity groups not liable to VAT and gradually pruning commodities and services subject to VAT rate of 5 per cent. The goal is a single rate of 10 per cent by 2020, with the exception of the zero rate for exported commodities and services.

CIT reform will involve reducing the common tax rate according to an appropriate roadmap. PIT reform will focus on expanding tax bases, clarifying taxable incomes and revising PIT brackets.

*Financial safety network loopholes require more effective surveillance: At a seminar recently organized by the National Financial Supervisory Commission, Dr. To Ngoc Hung, director of the Banking Academy, pointed to some loopholes in the financial safety network administered by five agencies, including the State Bank, the State Securities Commission, the Insurance Management and Supervision Department, the National Financial Supervisory Commission and the Vietnam Deposit Insurance, and proposed solutions to patching them up, the Vietnam Economic Times reported.

He recommended the quick improvement of the system of stock market supervision criteria, for comprehensive surveillance of all transactions, issuances, market operations, investment funds and fund management companies, and higher independence of market watch apparatuses.

For a long term, he proposed the promulgation of a law on financial inspection and supervision, clearly spelling out the role and responsibilities of each specialized supervisory agency and requiring effective exchange of information within the financial safety network to assure coordinated response, prompt detection and handling of violations and effective system safety and risk supervision.

Other seminar participants suggested the development of a model whereby all supervisory agencies would be administered by the National Financial Supervisory Commission, which would act as the sole government-attached agency competent to enact regulations and handle violations in the inspection and supervision of the banking, securities and insurance sectors.

*Stock market authority looks toward long-term objectives: In a recent interview with the Vietnam Economic Times, Chairman of the State Securities Commission Vu Bang said in 2012 the Commission would promulgate or propose for promulgation a number of regulations to help generate more energy for and enhance the administration of the market, including a Prime Minister directive on promotion of market operations and enhancement of market administration; a scheme on management of indirect investment capital and restructuring of commodities for the bond market, focusing on a pilot program on bond swap and big-lot bond issuance; a scheme on restructuring of stock exchanges; securities trading mechanisms; and continued provision of tax breaks for securities investors.

The Commission would coordinate with the State Bank in applying solutions to reforming the mechanism for securities loans and the securities payment system and restructuring securities companies of commercial banks.

It would also work with the Ministry of Planning and Investment in accelerating the equitization combined with market listing and restructuring of state enterprises, and pilot new models of open funds, securities investment companies, real estate investment funds and voluntary pension funds in order to widen the range of institutional investors and generate market demands. It planned to introduce global depository certificates and exchange-traded fund (ETF) products at stock exchanges, build a new system of market indexes, prepare conditions for execution of market orders, expand daily trading time in 2012, and put treasury bills into market trading.

*Trade facilitation reforms discussed: As the country’s economic growth depends largely on exports, foreign direct investment and private economic sector, it is necessary to build an effective facilitation system to promote the competitiveness of Vietnamese exports, implement programs on trade infrastructure and human resource development and focus on support industries to add more value to exports, experts suggested at a recent workshop on trade facilitation in Ho Chi Minh City. The Vietnam Trade Promotion Agency should organize more trade promotions to support domestic businesses and help set up their distribution channels and promote their image, the experts added.

According to Vietnam News daily, representatives from commodity line associations urged the Government to devise support policies to aid manufacturing plants to move to suburban areas, invest in clean manufacture and assist businesses manufacturing exports which heavily depend on imported raw materials, or exporting products to markets which impose strict protectionist measures, in forecasting price fluctuations, demand-supply balance and impacts of free trade agreements on their domestic trade activities.

Trade facilitation should involve reforms in border and behind-the-border operations and the logistics system (modernization of logistics operations and participation in third-party logistics), and improvement of customs and border management regulations and procedures.

*Public debt to draw greater legal attention: Nguyen Thanh Do, director of the MOF’s Department for Debt Management and External Finance, recently told Vietnam Economic Times that Vietnam has not regulated what public debt-GDP ratio is a safety indicator. According to the Law on Public Debt Management, public debts include government debts, government-guaranteed debts and debts of local administrations. Meanwhile, as defined by the World Bank, public debts include also all debts of state-owned enterprises.

He also warned that in the near future, Vietnam will face bigger difficulties because it is now ranked a middle-income country, and preferential loans, including official development assistance (ODA) loans, will either be limited or have less favorable conditions.

Suhas Joshi, International Monetary Fund (IMF) regional advisor, suggested Vietnam needs a sophisticated strategy to meet these challenges for the next decade, reducing liquidity risks and ensuring fiscal space available to absorb impacts of other shocks such as natural disasters and reduce volatility of debt servicing costs.

The MOF has recently submitted a draft public debt and national external debt strategy for 2011-2020, with a vision to 2030 to relevant authorities for comment, and developed the 2010-2012 medium-term debt management program for the National Assembly’s approval. Afterward, the 2012-2014 program will be updated.

Together with a debt strategy, developing the domestic bond market as a sustainable source of funding is one efficient way to solving the problem, Ranee Itarat, director of Thailand Policy and Planning Bureau’s public debt policy research division, recommended.

Other local experts also recommended new policies to improve the efficiency of public investment projects as the first step toward reducing public debts.

*Regulation on foreign trader representative offices, branches needs revision to inhibit violations: At a recent workshop in Ho Chi Minh City held by EU-Vietnam MUTRAP III, a multilateral trade assistance project to assist Vietnam in WTO commitments, Pham Dinh Thuong, deputy director of the Ministry of Industry and Trade (MIT) Legal Department said the current regulation on foreign traders’ representative offices and branches in Vietnam (Decree No. 72 of 2006) should be revised to enhance legal transparency and be consistent with international commitments and practice.

Pham Sy Chung, acting director of the MIT Planning Department said many foreign representative offices and branches have violated regulations. Many have failed to submit yearly reports or inform local administrations of changes in foreign staff or offices, or had unclear taxation or social and health insurance reports. He attributed these violations to the lack of specific provisions in Decree No. 72 regulating various types of operation, such as health care and construction services, which confused foreign traders when applying for operation licenses.

In response to many foreign representatives’ concern about the rigid limitation of five expatriates and 10 local employees for each representative office, he suggested the exact number of persons each representative office will be permitted to employ should be carefully considered with certain limitation so as to prevent it from negatively affecting the operation of others.

The Industry and Trade Department of Ho Chi Minh City, which has the highest number of foreign representative offices and branches in the country, recommended radical decentralization of powers to local administrations for licensing and managing these offices and branches, and other new rules concerning their setting up, scope of operation, foreign employees and office locations as well as rights and responsibilities of their heads.-

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