Further Administrative Reforms to Produce Greater Effect

9:35:18 AM | 7/22/2020

Over the next few decades, Vietnam is expected to be one of the fastest growing economies in the world, with an average annual GDP growth rate estimated at 5% between 2014 and 2050. High domestic demand, low unemployment and strong exports thanks to FDI inflows are factors that will make Vietnam the 20th largest economy in the world and the 10th in Asia by 2050.

These are comments made by President of European Chamber of Commerce in Vietnam (EuroCham) Nicolas Audier at the recent dialogue with European businesses in Vietnam, organized in Hanoi.

Strong effort but not enough

EuroCham highly appreciated the Vietnamese Government's efforts to reform the domestic business and investment environment, thereby becoming a more attractive market for investors. Fundamental factors such as low business costs, strong economic growth, soaring middle class and favorable environment have made Vietnam an attractive destination for foreign direct investment.

However, according to Mr. Nicolas Audier, to achieve this goal, Vietnam still needs to continue improving the business environment. Vietnam currently ranks 70th out of 190 countries worldwide in the World Bank's Ease of Doing Business Index 2020, down one level from 2019. Within ASEAN, Vietnam ranks fifth; however, its gap is quite far from Thailand and Malaysia.

According to statistics, from the beginning of the year until now, the Government has continued to reduce 239 business conditions, bringing the total number of business conditions cut from the beginning of the Government  (term XIV) to date to 3,893/6,191 conditions. The Government also cuts 6,776/9,926 items from the list of goods subject to specialized inspection and 30/120 administrative procedures related to specialized inspection. The total social cost saved from this reduction and simplification is estimated at more than 18 million working days/year, equivalent to over VND6,300 billion /year.

The improvement of administrative procedures and public services through the implementation of the single window mechanism have received positive feedback. Especially, the National Public Service Portal has integrated and provided 725 online public services within six months of operation (increased 90 times compared to the time of opening and 4.5 times compared with the previous 3 months). The total social cost saved when implementing online public services is about VND6,490 billion/year, of which, the National Public Service Portal alone contributes VND3,036 billion/year.

The current concern of European businesses is the implementation of EVFTA. Mr. Nicolas Audier said that Vietnam now has a golden opportunity to take advantage of EVFTA and attract FDI from European companies who are looking for an open, competitive and business-friendly market. For EVFTA to come into effect, it is important that the authorities of Vietnam, the EU and businesses continue to implement solutions to ensure effective enforcement, including the establishment of EVFTA's Business Council to review challenges in the implementation and coordination process.

"More important are Vietnam's efforts to implement administrative reforms and create an open investment environment for businesses. This is a suitable time for successful implementation of EVFTA as Vietnam is recovering post-COVID-19 and EVFTA will help boost Vietnam-EU relations,” said Mr. Nicolas Audier.

Support policies should take into account FDI enterprises

When EVFTA takes effect in August 2020, one leading factor is to continue positive progress in administrative reform, streamline business conditions, improve the investment environment and modernize the legal framework.

The EuroCham representative suggested that Vietnam should ensure the support policies are applied to foreign businesses as well. EuroCham also believes that many other long-term measures can be applied immediately to support the domestic business community and foreign investors simultaneously.

According to Mr. Jean-Jacques Bouflet, Eurocham Vice President, foreign enterprises make a big contribution to Vietnam's GDP, sustainable growth and overall socio-economic development. Not only does Vietnam need to protect domestic businesses, but it also needs to support foreign businesses, which have made an important contribution to the economic growth of the country - especially exports - once the epidemic is controlled and global trade back to normal.

Mr. Jean-Jacques Bouflet said that this also ensures compliance with international commitments and trade agreements to which Vietnam is a member, including EVFTA. Accordingly, EuroCham asked the Vietnamese Government to consider issuing a business support package to supplement the necessary resources for businesses heavily affected by COVID-19. Financial sharing from the Government, at any level within the budget and in balance with macroeconomic stability, is essential. The COVID-19 pandemic has impacted nearly every sector and industry with only a few exceptions, so it is important that this bailout package be ensured to be fair and unlimited to a small set of priority industries.

In order to ensure fairness among businesses, EuroCham has proposed and calculated specific industries and subjects to be damaged. Accordingly, it is proposed that the Government reduce corporate income tax for fiscal year 2020 by 50% for all affected businesses. The support policy should not be limited to small and medium-sized enterprises, in fact, many large enterprises operating in industries are adversely affected by COVID-19.

On the other hand, it is proposed to reduce personal income tax 50% for all taxpayers in Vietnam in the fiscal year 2020; reduce 50% of value-added tax for fiscal year 2020 to stimulate demand and consumption, support the economy and the whole society to recover; reduce 50% of compulsory social insurance contributions in 2020 for all affected subjects.

Previously, the Government issued Resolution 84/NQ-CP on May 29, 2020, which reduces 30% of the corporate income tax payable of 2020 for small and super-small businesses; reduce 15% of the land rent to be paid in 2020 for businesses, business households that have to stop production and business due to the impact of the pandemic (in the original draft is 30% for 6 months), along with other support policies.

However, EuroCham representative expressed his intention to keep the proposals on expanding policies to further support businesses, namely policies on corporate income tax, personal income, and added value to stimulate demand and support economic recovery.

Following this bailout, EuroCham also asked the Government to have more economic stimulus packages to promote the whole economy, including the private sector, to recover from the crisis. The broad scope of relief will contribute to retaining the labor force on a large scale, and the fact also shows that the increase in the number of workers will contribute to the domestic economic stimulus.

According to the assessment, the quicker and more active actions as well as the effective implementation of the above-mentioned policies will help maintain and attract more foreign investment capital, as well as elevate Vietnam's economy in the post-COVID-19 period.

Source: Vietnam Business Forum