Continued Business Support After COVID-19

9:08:46 AM | 24/9/2020

While businesses are struggling with difficulties caused by business shutdowns, production reductions and inventory increases, the first support measures such as corporate income tax incentives are considered ineffective and unhelpful. They are waiting for the second support package with more new solutions.

Outcome is not as good as expected

According to the General Statistics Office, from January to August 2020, 34,300 companies suspended their operations nationwide, 70.8% more than a year ago; 24,200 companies stopped operations and waited for bankruptcy procedures; and 10,400 companies completed bankruptcy procedures. However, according to economists, the damage may be much larger. Current statistical results do not fully reflect COVID-19 impacts on the economy and particularly businesses.

According to a recent survey on COVID-19 outbreak impact on businesses conducted by the Advisory Council on Administrative Procedures Reform, the biggest difficulties faced by businesses are having no customers, sales orders and product sales contracts, while still having to pay salary, social insurance and other expenses. Up to 76% of respondents said that their current income and expenditure is not balanced, with 54% having enough cash to cover less than 50% of the costs. Many had to cut labor.

Remarking on the first support package of the Government, Dr. Nguyen Tri Hieu, finance and banking expert, said that the package of VND300 trillion launched by the State Bank of Vietnam was not effective. The VND62 trillion package for jobless workers was only about 30% disbursed, with many complaining about very difficult procedures to get the aid.

Regarding business support, according to Dr. Hieu, the package of tax exemption, tax reduction, and tax payment postponement is only effective if companies make a profit. If they suffer a loss or go to bankruptcy, that package is meaningless. Until now, many companies cannot access the zero-rate package of VND18 trillion. It is necessary to increase the size of the support package to enable them to resume business operations right after the COVID-19 pandemic.

Many businesses complained about the reasons for their failed access to support policies. For example, to get the aid, they had to lay off 50% of employees or lose 50% of properties as a result of the pandemic impact. This requirement is very difficult to be fulfilled in practice as it requires companies to show proof certified by competent authorities which require companies to deal with a lot of administrative procedures as well. In some other cases, undesirable adverse effects may occur. For example, they may deliberately sack 50% of their employees to get the support or they may ask for proof of having this requirement in return for a kickback. Still, if their layoffs or property damage are below 50%, they do not qualify for the aid.

Expectation for second support package

According to experts, the second support package should focus on monetary policies and reduce fiscal policies. Dr. Pham The Anh from National Economics University, said, the Government should help jobless workers and troubled businesses get cost support, rather than tax cuts like now.

Some monetary policy measures for business support considered practical and effective in the coming time are expanding the form of unsecured loans to support businesses, preferential interest rates, and interest rate cuts, allowing tourism and logistics industries to apply electricity prices like the manufacturing industry, he said.

Dr. Nguyen Tri Hieu also said that the second support package for the economy is necessary and preference should be given to small and medium-sized enterprises. In fact, despite being considered the main growth engine of the economy, SMEs are rarely given policy priority and their resistance is weak and vulnerable.

In particular, it is necessary to reduce cumbersome and unreasonable regulations and procedures seen in the first support package, prevent business recession, promote public investment, effectively attract FDI inflows and support domestic businesses to make good use of opportunities. More specific proposals included asking the Government to submit to the National Assembly a 30% reduction of corporate income tax for all businesses in 2020, and reduce by at least 50% social, health and voluntary insurance and exempting union dues.

Notably, the Government is recommended to reduce corporate income tax by 30% for all businesses in 2020 instead of only applying to companies with total revenue of VND200 billion or less in 2020 as specified in Resolution 116/2020/QH14 on corporate income tax reduction in 2020. According to the current assessment, preferential corporate income tax only benefits 2% of companies affected by the pandemic

By Huong Ly, Vietnam Business Forum