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Economic Sector

Last updated: Friday, October 19, 2018

 

Revised Policies Required to Develop Private Sector

Posted: Wednesday, January 31, 2018


Vietnam's policies towards the private sector have revealed numerous inadequacies, resulting in enterprises becoming greedy to invest in land, securities and real estate rather than in industries to participate in the global value chain.

Despite the implementation of a number of policies in support of the private sector over the past few years, the private sector remains insignificant.

According to Nguyen Duc Thanh, Director of the Vietnam Institute for Economic and Policy Research under the Vietnam National University, Hanoi, the private sector's contribution to the national economy has never surpassed 10 per cent of the GDP during the past 10 years, while the rate is at least 80 per cent of the GDP in developed countries. In addition, the State sector and State-owned enterprises (SOEs) are overwhelming the private sector.

Professor Tran Van Tho from Japan's Waseda University said that the private sector shows an inefficient structure, low productivity, a lack of capacity for exports and has yet to connect with the global value chain of multinational corporations.

SOEs hold high positions and are provided with preferential treatment in terms of capital and land while these factors of production are disadvantages to small private enterprises, requiring institutional reform in the factors of production to enhance resource efficiency and productivity.

Although the foreign direct investment (FDI) sector occupies a large proportion of the economy, it creates a negligible impact on economic structure transfer. In addition, the link between FDI and domestic enterprises remains weak, creating limited influence on technology and knowledge transfers. A strategy for increasing the connectivity between the FDI and domestic sectors would help to improve the productivity of domestic enterprises.

Thanh said that raising the private sector is crucial for national development, but it is difficult to make the private sector grow in a robust fashion. The biggest obstacle to the economy is the dominant role of the State in all areas, including State management and SOEs. Thus, it is necessary to devise a transparent law system which is committed to protecting the ownership rights and achievements of businesses through streamlined procedures when solving any disputes.

When the people and enterprises continue making complaints about policies, it means that the management apparatus has yet to pay off. Professor Tho said that it is necessary to encourage start-ups in addition to devising policies to nurture enterprises and help them to increase their size.

He noted that light industries also need to increase their size in order to renew their technology, enhance productivity and improve competitiveness. Furthermore, Vietnam should promote the advantages of a country conducive to the progress of developed countries, through encouraging enterprises to adopt advanced technology and prioritising foreign currencies for importing technology, among others.

Sharing the same view as Tho, Dr. Vu Thanh Tu Anh from Fulbright Vietnam University said that Vietnam should facilitate and accompany existing enterprises to develop the private sector.

Enterprises operating in Vietnam face prolonged unsolved difficulties, including gaining access to capital and land, high costs, and unfair treatment in attempting to gain access to business opportunities concerning State projects and projects requiring business conditions.

It would appear that Vietnam lacks motivation and determination to bring the policies into life, resulting in complaints from the people and enterprises.

Economist Pham Chi Lan stated that Vietnam needs to rely on private enterprises to boost the economy, but private Vietnamese enterprises are too feeble. Lan noted that the current policies are making enterprises greedy to invest in land, securities and real estate instead of industries and supporting industries in order to participate in the global value chain.

The expert recommended policy adjustments in order to encourage enterprises to take part in industries.

In addition, Deputy Minister of Finance Do Hoang Anh Tuan stated that there have been a lot of inadequacies with regards to tax incentives over the past 20 years. For instance, the taxation statistics released by the Finance Ministry showed that the FDI sector received over VND35 trillion (US$1.54 billion) worth of tax exemption out of VND37 trillion (US$1.63 billion) tax payments, which was a result of the price escalation in tax incentives charges.

The reality also poses a risk to transfer pricing and incentives following tax periods, requiring the promulgation of a simple tax law system and accounting policy. Meanwhile, it is advisable to revise tax policies on the basis of expanding the tax base but not increasing the tax and tax payment rates.

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