Urgent Business Support to Covid-Hit Businesses
The Vietnam Chamber of Commerce and Industry (VCCI) gathered suggestions on the response to the COVID-19 pandemic from more than 100 business associations and hundreds of businesses, and sent a report on these to the Prime Minister.
The fourth raging outbreak of the COVID-19 pandemic resulted in prolonged restrictions on mobility, causing serious damage to businesses. According to the General Statistics Office (GSO), corporate bankruptcies outnumbered new startups in August. On average, nearly 10,700 enterprises left the market a month. Incorporation, capital and employment indicators in August and September sharply declined.
Listening to the business community, VCCI collected recommendations and proposals from businesses and trade associations in order to find solutions to boost manufacturing and support businesses in the current context of living with COVID-19.
Proposing tax reduction policy
For services (such as tourism, restaurant, hotel, transportation and cinema), a 30% VAT reduction is proposed. VCCI recommended that VAT reduction support should be expanded to 50% to create a larger impact and stronger rebound for industries that are extremely hard hit by the pandemic.
According to the proposal from the Ministry of Finance, enterprises with revenue that is VND200 billion or less in 2021 and less than in 2019 will be entitled to a 30% reduction in corporate income tax (CIT). The Vietnam Chamber of Commerce and Industry (VCCI) deems this level unreasonable as it will exclude some small and medium-sized enterprises (SMEs). According to the current Law on SME Support, one of SME criteria is total revenue of not more than VND300 billion in the preceding year. Therefore, in order to ensure the effectiveness of this support policy, VCCI proposed to set the revenue limit of VND300 billion or lower for CIT reduction.
The Vietnam Automobile Transport Association proposed slashing VAT to 0% for automobile transport businesses in 2021 as transport firms, including passenger transport firms, are facing difficulties. Passenger volume decreased, vehicle traffic contracted and revenue slumped, while they have to continue many activities.
Paper enterprises are mainly located in Bac Ninh and Bac Giang (in the north) and Binh Duong, Binh Phuoc, Dong Nai and Ho Chi Minh City (in the south) where the pandemic is raging. Therefore, paper is one of the worst-hit industries. Paper producers proposed a 50% reduction in VAT, CIT, import tax and personal income tax (PIT) for employees in addition to extending the payment time by 6-12 months. Moreover, paper firms also proposed lowering electricity prices by 10% from August 2021 to the end of December 2021, and further to June 2022 if the pandemic continues.
Revising interest rates, preventing speculation
According to the Vietnam Association of Financial Investors (VAFI), some ASEAN countries such as Thailand, Malaysia and Singapore are applying zero rates to short-term local currency deposits and interest rates of 0.2%-0.5% per annum for long-term deposits. In Vietnam, interest rates for short- and medium-term VND deposits are at 3.5-6.2% per year - very high compared to the above-mentioned countries, leading to a 2-3-fold increase in lending interest rates. This is a big disadvantage for the Vietnamese business community as well as a large number of low- and middle-income consumers.
When deposit interest rates drop sharply, to discourage buying foreign currencies, VAFI recommended the State Bank of Vietnam levy fees on foreign currency deposits to ensure a stable exchange rate policy and not cause macroeconomic imbalance.
At the same time, VAFI proposed the Ministry of Finance compile a law on property tax to restrict speculative cash flows into the real estate market and prevent land price hikes, apply progressive property tax from the second home onwards to prevent speculative cash flows as other countries have done. This solution is a prerequisite to quickly lower interest rates on savings deposits.
VAFI believes that it is necessary to strongly direct idle cash flows into the bond market with deposit interest rates below 2% per annum and the banking system will thus be able to mobilize a huge long-term fund for medium-term and long-term lending facilities where interest rates are below 5% per annum.
The textile and garment industry was painfully hurt as most businesses halted manufacturing or scaled-down operations, lost customers and suffered extremely heavy economic losses. The Vietnam Textile and Apparel Association proposed that the State Bank continue to reduce the interest rate to 0.5-1% per annum and extend the repayment period of principal and interests in 2021 and 2022.
Regarding policies on labor, salary, social insurance, and trade union, many businesses suggested that the Government offer stronger support packages, such as a 30% reduction in corporate income tax; provide interest-zero loans; delay the payment of social insurance and unemployment insurance premiums till the end of 2021; reduce union dues to 1% and postpone union dues payment in 2021 to the end of 2021.
SBV will increase the credit limit for banks
Ms. Nguyen Thi Hong, Governor of the State Bank of Vietnam
Over the past time, the State Bank and the credit institution system have actively and drastically carried out many credit support solutions for enterprises to deal with business difficulties, facilitate distribution of goods and helped control inflation, maintain macroeconomic stability, and support economic growth.
As of September 21, bank credit rose by 7% year on year. The payment system of private banks with localities was smooth. At the same time, the SBV re-issued the policy on debt structure and kept the debt group classification unchanged. Lending interest rates were forecast to decrease by VND28 trillion and will further decline in the coming time. The SBV will also focus on curbing inflation.
In the near future, the SBV will likely increase the possible credit limit for banks and appropriately revise policy rates.
Facilitating mobility for enterprises
Mr. Nguyen Van The, Minister of Transport
Many localities have recently introduced inappropriate pandemic prevention policies that have troubled people and businesses. Some have witnessed congestion due to inappropriate regulations such as requirements to change for local drivers, 24-hour or 48-hour validity of a COVID-19 test certificate, which is shorter than 72 hours instructed by the Ministry of Health. Or an extra test is required while the existing test certificate is still valid before driving the vehicle back to the starting place. These regulations have increased costs for businesses and frustrated the masses.
I suggest that localities consider policies carefully before applying them to avoid generating more regulations for businesses. At the same time, they must also withdraw inappropriate regulations.
New policies on digital economy in the blueprint
Mr. Nguyen Manh Hung, Minister of Information and Communications
COVID-19 is the centenary boost for digital transformation. Digital transformation is not only a situational solution to deal with COVID-19 but also a long-term, strategic solution. Applying digital technology to combat the pandemic must be the beginning of the long-term digital technology application in socio-economic development.
Vietnam will have a better digital infrastructure in the near future and will soon license mobile money business for enterprises. As a digital platform, sharing must be universal across the industry and the country and digital apps must be available for all users.
By: Huong Ly/Vietnam Business Forum
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