State Support Policies for Businesses: Not As Good As Expected

According to the Resolution 13/NQ-CP, the Government extended VND11,124 billion of value added tax payable in the second quarter of 2012 for nearly 190,000 businesses; extended VND3,327 billion of corporate income tax for 77,295 enterprises; extended VND2,778 billion of land rents for 346 enterprises; reduced 50 per cent of land rents worth VND445.2 billion for 3,609 companies in 2012; exempted and refunded VND12.4 billion of excises to 44,897 fishing households and salt households.

 

According the Resolution 29/NQ-QH, enterprises will enjoy a reduction of corporate income tax worth VND5,144 billion (VND3,060 billion in 2012 and VND4,150 billion in 2013), and personal income tax valued at VND1,305 billion (VND1,054 billion in 2012 and VND251 billion in 2013) to live through the tough time.

 

Although the Resolution 13/NQ-CP and the Resolution 29/NQ-QH have given a boost to enterprises’ situations, the overall effectiveness falls short of their expectations.

 

Specifically, according to the Ministry of Finance, to implement the Resolution 13/NQ-CP, the State Budget is expected to see a income reduction of VND9,000 billion and the real value businesses get is forecast to amount at VND29,000 billion, of which nearly VND16,000 billion come from deferred VAT and VND13,000 billion are from exemptions of some taxes. Thus, the reduction in State Budget’s revenue is much smaller that the benefit enterprises get. Only deferred land rent payment for 350 enterprises is significant with about VND8 billion per enterprise. However, this solution is not enough to revitalise the real estate market.

 

With support solutions from the Resolution 13/NQ-CP and the Resolution 29/NQ-QH, as of the end of the third quarter of 2012, industrial development index improved although the rate was just 4.8 per cent from the same period in 2011. However, noticeably, the growth of aggregate demand showed no signs of improvement. This not only caused inventories to increase but also sent many companies into heavy debt (tax debt equalled over 6.8 per cent of takings and bad debt accounted for 8.6 per cent of total outstanding credit loans) while local governments owed VND91,000 billion to companies.

 

Therefore, according to VCCI, to help businesses deal with difficulties and support the market, key solutions must be: Lowering prices of products and services, stimulating consumption, clearing inventories in couple with improving solvency, and boosting consumer confidence. These resolute measures are not brought into play timely. Rising prices of essential inputs like petroleum and electricity make it hard to reduce cost prices. Controversial introduction of some fees shakens business confidence and inhibits businesses from making new investments.

 

According to VCCI, to encourage businesses to invest in production expansion, particularly in prioritised fields, the Government needs to restore some investment incentives and continue applying investment incentives for expansion investment as well as fresh investment.

 

In addition, it is necessary to broaden the scope of support of the Resolution 13/NQ-CP to give a real boost. For instance, the Government may reduce indirect taxes (e.g. 50 per cent reduction in value-added tax in 2013) to help businesses to lower prices to stimulate consumption and reduce inventories.

 

Besides, lending rates must be brought to more reasonable levels, especially for SMEs. To promote this, it is necessary to quickly establish SME Support
Fund to widen access to bank loans for SMEs. In the context of frozen real estate market, the heavy reliance on bank loans is sending real estate companies into more and more difficulty. Hence, to support SMEs to access to capital sources, it is vital to accelerate operations of SME Credit Guarantee Fund at both central and local levels.