Administrative Reform and Business Confidence

7:39:10 AM | 20/1/2020

The legal environment for business was greatly improved in the past year by speeding up the implementation of Resolution 02, Resolution 35/NQ-CP and Directive 26/CT-TTg of the Government on business support and development. In addition to achievements in simplifying cross-sector inspections, abolishing unnecessary licenses and business conditions, there are still shortcomings that increase risks to the business community.

The Vietnam Business Forum’s reporter has an interview with Mr. Dau Anh Tuan, Director of Legal Department, VCCI, about these issues. Anh Mai reports.

While Vietnam is actively joining international trade agreements, many legal documents will need to be reviewed and revised to conform to international commitments. You expressed your view that renewed tax law policy and law transparency are necessary because of far-reaching impacts on not only taxpayers but also on supporting industries. Could you please tell us more about this?

As for investors and businesses, this affects operational efficiency, even their existence. Therefore, promulgated and amended policies must be consistent with reality, stability, transparency and predictability. What businesses fear most is changeable, unpredictable policies. In recent years, sudden policy and law changes have been seen in some industries and fields, fueling concerns of companies and even leading them to close.

For example, 21 small and micro enterprises in Dong Anh district, Hanoi, had to call the Vietnam Chamber of Commerce and Industry (VCCI) for help because the government decided to increase the land price by five times and change the payment method: From a monthly basis to one payment for the whole leasing term. They felt that they were forced to be ousted because they could not afford this level of money. VCCI’s recent surveys on foreign-invested companies showed this worry when law stability is being increasingly underestimated by foreign investors.

We think that Vietnam needs to see policy and law stability and consistency as an important requirement. Any change in or amendment to laws/policies needs to be widely consulted and appropriately applied.

Repetitious, troubled inspections and examinations have been raised at many seminars and mourned by businesses. How has this reality changed now?

Excessive and overlapping inspections are a major glitch in Vietnam's business environment. The Prime Minister issued Directive 20 in 2017 to rectify this issue. According to VCCI's survey, inspections were clearly improved. The rate of enterprises subject to two or more inspections a year dropped sharply from 40% to 19%, according to the latest survey. The percentage of companies that reported overlapping inspection contents also decreased from 14% to 11%.

However, inspection and control abuses are still seen in some places and with many businesses. Notably, the current status of inspection or administrative measures is based on decisions of public servants themselves. This risks arbitrary, abusive and negative acts.

Ministries and branches need to switch to risk-based management. At present, customs and tax authorities are doing this well. There is a need for expanding this to other areas. There is also a need for having a risk assessment system and information connectivity system. This is an important solution to motivate businesses to comply with laws, and administrative compliance costs will be lower.

According to a survey by VCCI, business satisfaction about tax administrative procedures is a bright spot in the business environment in the past year. Would you mind telling more about this?

In the second quarter of 2019, VCCI conducted a business survey into more than 1,700 businesses nationwide on tax administrative procedures. Business feedback showed positive results.

Information on tax administrative policies, laws and procedures was more accessible, featured by information availability, consistency and completeness of tax forms.

Electronic tax services were widely deployed to businesses. Most businesses declared, registered and paid tax electronically. The strong information technology application in the tax industry helped increase Vietnam's scores and rankings of “Paying Tax and Social Insurance” sub-index in the World Bank's Doing Business Report 2020 released recently.

Tax auditing, based on risk management, produced relatively good results when tax authorities took the lead in developing a risk management system in Vietnam. The system initially categorized most high risks in the tax sector and allowed tax authorities to integrate risk classification results for better administration.

The sector positively improved the service of tax officials, illustrated in positive feedback of enterprises on most aspects of discipline, working manner and service attitude. Tax officials were praised for support and troubleshooting for enterprises.

However, the tax industry also needed to improve many areas, including inclusive information technology applications, coupled with infrastructure upgrading for electronic tax services. Survey results showed that nearly half of businesses still confronted data transmission congestion when they paid taxes. The sector will need to have more effective measures to further minimize informal costs in tax procedures, particularly risk-prone processes such as tax audit and tax inspection. Tax audit and inspection also need to be further improved to avoid duplications and prevent inspectors from interpreting tax regulations in a way that is bad for enterprises.

The Provincial Competitiveness Index (PCI) 2019 showed that informal charges were reduced, administrative procedures were streamlined and infrastructure was improved, but a high ratio of companies still faced difficulty, particularly small and medium-sized enterprises (SMEs). Will these issues be improved in the next PCI, sir? And, what are difficulties for businesses?

Through annual PCI surveys, in addition to improving administrative quality and local administrative reforms, domestic companies told their difficulties. For example, in 2019, they reported outstanding hardships in finding customers (60% found it hard to find customers), seeking capital (37%), responding to market fluctuations (32%), recruiting workers (28%), seeking business partners (27%), and adapting to policy changes (23%).

Micro, small and medium enterprises often confronted more difficulties than bigger ones in seeking customers, capital and business spaces. Companies founded in the last five years faced more difficulties than the rest, especially in seeking customers, capital and business spaces, recruiting workers, looking for business partners and carrying out administrative procedures.

Loss-making companies faced tougher difficulty than profitable ones, especially in accessing capital, finding customers, finding suitable business locations, finding suppliers, recruiting workers, and seeking business partners.

Enterprises planning to down-size or close business operations had significantly higher difficulty than those planning to expand business in accessing capital, seeking customers, and improving infrastructure. Most notably, the former have a higher rate of complaints about difficulties caused by law and policy changes than the latter. This showed that good policymaking is important for businesses.

Thank you very much!