Cooperatives: Weak Economic Force

According to a report released by the Vietnam Cooperative Alliance, in the first seven months of this year, the Ministry of Finance extended the payment term for value-added tax (VAT) for 208,250 businesses, extended corporate income tax payment term for 8,260 enterprises, reduced land rents for 3,150 enterprises. Unfortunately, a very few cooperatives enjoy this tax relief policy although the Decree 60/2012/ND-CP provides that cooperatives are eligible for tax break and half land rent reduction in 2012.

 

The biggest cause to this drawback lies in the Cooperative Law 2003. Mr Dang Huy Dong, Deputy Minister of Planning and Investment, said: The Law on Cooperative 2003 defines that “Cooperative is an enterprise”. So, over the past nearly 10 years, the new model of cooperative has been deformed or abused to seek policy-driven profit in many localities.

 

For that reason, there is a need for a new look into the nature of new cooperative model. Duong Dang Hue, Director of Economic Civil Law Department under the Ministry of Justice, said: The clear definition of the nature of cooperative is the most important content of the current draft Law on Cooperative. The nature of cooperative is a decisive factor to other related issues like member rights and obligations of member; rights and obligations of cooperative, organisational structure and management mechanism of cooperative, settlement of assets belonging to dissolved cooperative, etc.

 

In the market economy, cooperative operates on the characteristically basic principle of “for human” and operates for benefit rather than for profit. In essence, the original capital of a cooperative comes from capital contributed by its members. Gradually, the accumulated fund will not be shared but is used to supplement capital for its production and business expansion. Hue said "These are the initial seeds of socialism."

 

Therefore, cooperative is a characteristically collective economic organisation bearing deeply social nature of weaker people sharing the needs and interests, uniting together and assisting together in the struggle against market pressures to safeguard and develop production and business activities, create jobs and look towards common interests of members and the community, said Nguyen Ngoc Hoa, President of Saigon Co.op.

 

With such important social functions, cooperative needs to be made basically different in nature from enterprise. Therefore, it needs to be given different supports from enterprises. Dao Xuan Can, Chairman of Vietnam Cooperative Alliance, said: All countries in the world have cooperative support policies, including developed countries. Vietnam has a lot of cooperative support policies but they are not fully brought into practice. He said there are training programmes for cooperative members but they are not centrally organised. The Vietnam Cooperative Alliance hosts some while the agricultural sector holds some, etc but the contents are not practical. For example, heads of cooperative are primarily living in rural areas and they should be trained to establish projects, prepare credit borrowing procedures, land ownership registration application, etc.

 

Dr Tran Du Lich, member of the National Assembly's Commission on Economic Affairs, said: Cooperative is an economic organisation of the weak in the market economy. Therefore, the new law in place of the 2003 Act should provide too tight regulations on conditions of establishment and operation but it should encourage linkage, increase supports for cooperative by not collecting cooperative taxes, introducing specific policies on land and credit supports, and importantly bringing such policies to life, not keeping on paper as today. However, it is important to have a clear monitoring mechanism for these activities to achieve practical results. Cooperative is a not-for-profit organisation though; it does not mean that its activities are unprofitable. Members of cooperative contribute capital to expand business activities and join the collective economy but their profits are not shared among all members but use that source of profits to scale up operations, enhance performance efficiency. Currently, Vietnam lacks legal provisions on this operational model; thus, the new Cooperative Law needs to make specific provisions on inspection and supervision in all activities related to use of capital and profit sources.

 

Mr Nguyen Van Thanh, Chairman of Credit Fund in Nguyen Khe commune, Dong Anh district, Hanoi, said that the presence of credit fund has positively contributed to local socioeconomic development. However, this fund does not meet capital needs of people. So, he proposed the State have a mechanism to support cooperatives to access loans from policy banks and cooperative development support funds. Besides, apart from mobilising capital from its members, the State should allow cooperatives to mobilise social capital, legalise the formation of cooperative capital support funds, support the establishment of cooperative banks, allow cooperatives to access concessional loans from international organisations, he added.

 

The amended law is expected to be ratified by the National Assembly at the next meeting in October 2012.