Fiscal Policies Help Businesses Deal with Difficulties

The National Assembly and the Government of Vietnam have adopted and applied comprehensive tax and credit measures, sped up trade promotion programmes, developed capital markets, and reformed administrative procedures in a bid to assist businesses to deal with difficulties in production and business activities, and support the market. Resolution 08/2011/QH13, Resolution 29/2012/QH13, Resolution 13/NQ-CP, Resolution 02/NQ-CP, the Law on Amendments and Supplements to a Number of Articles of the Law on Value-added Tax (VAT), and the Law on Amendments and Supplements to a Number of Articles of Corporate Income Tax and hosts of other financial solutions have been deployed consistently to remove difficulties against businesses and support business development.

 

One, reducing and extending land rent payments to support businesses in production spaces. Beneficiaries will enjoy a 50 percent reduction in land rent in 2011 and 2012 (for manufacturing enterprises) and 50 percent in 2012 (for service and trade companies).

 

The land rent reduction is applied to economic entities engaged in production, trade, services, households and individual. Financially troubled project owners will be allowed to deter their land rent payments until they have incomes. This policy has helped businesses reduce land rent costs and help more funds to stabilise and develop production activities.

 

Second, the Government issued policies on VAT and Cit reduction, exemption and rescheduling in a bid to help enterprises to increase capital for business activities, particularly small and medium-sized enterprises (SMEs).

 

Besides, the Government enacted policies to unfreeze the capital market, and encourage enterprises to issue bonds to raise funds instead of conventional mobilisation channels. In 2014, they mobilised VND26,722 billion of corporate bonds, or 2.3 percent of GDP, to fund their operations.

 

In addition, the Government had policies to boost operations of State financial funds such as SME Credit Guarantee Fund via the Vietnam Development Bank (VDB) and local credit guarantee funds to increase capital access for enterprises. The introduction of Decision 58/2013/QD-TTg in place of Decision 193/2001/QD-TTg provided better conditions for SMEs to access capital sources. Specifically, conditions for credit guarantee are eased. Collateral requirements drop from 30 percent to 15 percent of the loan value and companies must have at least 15 percent of owner’s equity injected into projects. The only SMEs are subject to credit guarantee by the SME Credit Guarantee Fund. The Credit Guarantee Fund can guarantee a part or entirety of the different between the loan value and collateral value, thus helping SMEs access capital sources more easily.

 

Third, the Government continued to spend in trade promotion programmes to help businesses introduce and advertise products, expand domestic and foreign domestic markets to gradually raise the status of the Vietnamese products and exports.

 

To increase domestic demand, the National Assembly enacted the Law on Personal Income Tax (PIT), which raised the starting amount of taxable income value from VND4 million a month to VND9 million plus the amount for family dependants which increased from VND1.6 million each person to 3.6 million. This helped boost personal spending, which encouraged production and business operations of enterprises.

 

Fourth, Vietnam encouraged enterprises to accumulate capital by reducing corporate income tax. The Law on Corporate Income Tax 32/2013/QH13 lowered corporate income tax from 22 percent in 2014 to 20 percent in 2016 and preferential corporate income tax (applicable to SMEs, microeconomic organisations, etc.) from 20 percent in 2014 to 17 percent in 2016. The tax reduction had positive impacts on business operations as it helped cut taxes and increase profits. Thus, the tax cut increased corporate investments, decreased commodity prices, boosted consumption and stimulated the economy.

 

Fifth, administrative procedure reform helped unlock the country’s resources, improve the business and investment environment, enhance national competitiveness, and motivate business development. Administrative procedure reform solutions to taxation and customs proved to save 10-20 percent of expenses and 30 percent of time for businesses in dealing with imports and exports.

 

To further assist businesses to remove difficulties and enhance competitiveness when the economy fully integrates into the world, Vietnam will focus on the following solutions:

 

First, tax policy: Effectively enforce tax-related laws passed by the National Assembly like the Law on Amendments and Supplements to a Number of Articles of the Law on Value-added Tax (VAT), and the Law on Amendments and Supplements to a Number of Articles of Corporate Income Tax and others to help enterprises enjoy policies in the best manner.

 

Second, pricing policy: Effectively carrying out price policies, administering prices with macroeconomic measures in line with market economy mechanism and international economic integration commitments; limiting loss offsetting or price subsidy to reduce the "distortion" of pricing system of the economy. Market-based pricing will be gradually applied to electricity, water, coal, petroleum. This will help enterprises to be more active with their pricing.

 

Third, credit policy: Enhancing operational efficiency of financial institutions (VDB, local credit guarantee funds) by strengthening financial resources for these organisations, introducing policies to draw capital for credit guarantee funds.

 

Fourth, capital market development: Carrying out measures to encourage the development of capital markets in order to create conditions for enterprises to mobilise capital by means of issuing bonds, stocks and equity funds and reducing excessive dependence on bank loans. Vietnam needs to develop credit rating services to support stock and bond markets to enhance transparency, accelerate capital mobilisation, and protect investors.