Enterprises in Vietnam Buckling under Excessive Business Cost

Enterprises in Vietnam Buckling under Excessive Business Cost

Enterprises in Vietnam, particularly those foreign-invested ones, are bearing soaring business costs while preferential policies for them are going down, said Tran Xuan Lich, Deputy Head of the Central Institute for Economic Management (CIEM).

Corporate income tax has in fact climbed up to 40 percent since legitimate expenses are not deducted. The impossibility of minimizing unnecessary expenses has pushed product’s prices upward and lowered the quality of service. Meanwhile, the country’s low development background plus improper policies have worsened the situation.

According to Hoang Van Thanh, Deputy Director of Macro-Economic Policy Board (CIEM), tax is considered a considerable sum of the expenses of enterprise, directly impacting price and competitiveness. However, tax policies in Vietnam are experiencing continuous changes, especially in import, which impedes enterprises in making long-term production plans and price strategies.

A recent survey by CIEM of 80 enterprises points out the impossibility of minimizing rising expenses is burdening enterprises. Specifically, the Hanoi Entertainment Joint Stock Company has reported losses due to extremely low revenue as the main consequence of high taxes levied on the entertainment service (10%) while the company’s clients are the public with different income levels. In the meantime, the Petrolimex Joint Stock Insurance Company (PJICO Hanoi) makes claim over the Ministry of Finance’s restraint on sums for advertisement and marketing, applied to all types of enterprises, which must not exceed 10 percent of the total expenditures. To realize its business plan and strategy, the company had to give unofficial expenses to tax bureaus to get the nod for higher rates of advertising expense.

As to representative of Sanmiguel Glass Vietnam, the company’s business strategy is to focus on export. Nevertheless, costs for transport in Vietnam are every high because it must hire foreign transport fleet and pay a premium for foreign insurance companies, which seriously influence the competitiveness and profits of the company.

A recent research by the Ministry of Industry also points out that the electricity price for production in Vietnam is not high but limited in supply service, which causes an average loss of 10-15 percent of electricity expense for enterprises. An exporter to the U.S. must pay a freight of around US$3,000, much higher than in China (US2,000) and Thailand (US$2,500).

It could be said that excessive business costs have hampered enterprises from renovating technologies, improving management capability and working skills for laborers. These create negative reaction from enterprises upon continuous changes in their business plan whenever a new legal document is issued or there is a hike in prices of a certain product or material.

Minimizing business expenses for enterprises is crucial. Businesses, nevertheless, must have their own human resource training policy, adding to lower labor costs which is included in the product price. The Vietnamese Government needs build up policies on ordinary laborers so as to improve the general quality of laborers.

• Thi Van