Directive to fortify local production

09:00 | 17/03/2020
As the COVID-19 outbreak is poised to cause a global economic crisis affecting Vietnam, the government’s fresh solutions to boost local production to achieve the country’s economic growth goal are hoped to give a kiss of life to both enterprises and investors.  
directive to fortify local production
Directive 11 is expected to fuel the performance of enterprises amid the pandemic, Photo Le Toan

The business community in Vietnam has received good news as Prime Minister Nguyen Xuan Phuc issued Directive No.11/CT-TTg, rolling out tasks and solutions to support production and business activities as the COVID-19 outbreak threatens to cause further negative impacts on society and the economy.

“All support measures must be implemented immediately so as to assist those hit by the epidemic and remove difficulties for domestic production and business activities. This is also aimed to ensure social security and the accomplishment of all socio-economic development and goals for 2020 that have been set out,” PM Phuc stated.

The prime minister ordered the Ministry of Labour, Invalids, and Social Affairs (MoLISA) to deal with labour-related issues that have seriously hit enterprises, in one of the main moves. It is expected that more specific solutions will be detailed by the MoLISA in the next week or two.

In addition, the MoLISA also has to propose solutions on helping enterprises to ensure employees are available, especially overseas experts.

The PM also asked the Ministry of Transport and the Ministry of Finance to review and further cut down administrative procedures and costs for enterprises and investors, such as those in logistics and all transportation methods. Moreover, enterprises and investors must also be supported in taxes and fees – a particularly tough issue right now.

“No periodical examinations and inspections in enterprises that have no violation signals are allowed,” the directive stated. “There must be a reduction in fees for those affected by the epidemic. There will be no rise in state-managed prices of items used as inputs for enterprises.”

Last Thursday, PM Phuc also met with leaders of some Vietnamese private firms to discuss the challenges in the mist of the COVID-19 pandemic. The firms proposed reductions and exemptions of assorted fees and taxes.

Expectations

Vice chair of the Korea Chamber of Business in Vietnam, Hong Sun, told VIR that the directive is of great significance in what he called a “dangerous and extremely difficult” time for all enterprises.

“We hope the directive can be implemented in details as soon as possible,” he said. “While enterprises are finding it hard to boost exports, it is also extremely hard for them to expand domestic consumption as consumers are currently tightening their belt for fear of unemployment and reduced incomes caused by COVID-19.”

According to Sun, by the end of the month all enterprises will have to pay assorted taxes, including corporate income tax (CIT).

“For example, about 9,000 South Korean firms in Vietnam using over one million Vietnamese labourers will have to pay taxes, while many of them are bogged down in difficulties,” he said. “So we expect that the directive can help enterprises in taxes. For example, the state can reschedule or lengthen the time for CIT payments.”

Besides that, the State Bank of Vietnam can also ask commercial banks to provide soft loans for enterprises at preferential lending rates. “In South Korea and Japan, such rates are at zero, while South Korea has provided exemption and reduction of CIT and taxes as well as fees and rentals for investors,” Sun added.

Currently, many big foreign firms such as Samsung, LG, and Foxconn are suffering shortages of not only employees, but also senior experts – most of whom are from abroad.

“We also expect the government’s new directive to help firms out of hardship. If the situation lasts long, Vietnam’s economy will be affected in terms of growth and social security,” Sun said.

Currently Samsung accounts for about 25 per cent of Vietnam’s export turnover annually, and is now turning Vietnam into its largest hub for making electronics items. Recently it broke ground for constructing a research and development centre in Hanoi, worth $220 million.

Marko Walde, chief representative of the Delegation of German Industry and Commerce in Vietnam, told VIR that Directive 11 is expected to help foreign firms including German ones out of the mire soon. “Vietnam’s government has announced more economic helps for businesses and workers which are highly recommended and essential, such as facilitating access to credit and tax, cutting administrative procedures, and recovering affected sectors like tourism and aviation industry.”

Walde also believed it is now the ideal time to conduct a health check on business to assess potential risks. “They should update and consider any potential changes in the current situation and be prepared in the event the situation worsens, regarding to the new stable supply chain and the new potential markets and partners,” Walde added.

He said Vietnam remains quite an attractive investment destination. However, challenges remain and need to be removed as soon as possible in favour of investors and businesses. “Though the directive has been enacted, we are awaiting how exactly it can be implemented.”

The biggest hurdles for German enterprises to perform in Vietnam include a lack of information (54 per cent of German firms), difference in corporate culture (43 per cent), language difference and seeking suitable partners and high-quality workforces (37 per cent), according to the association.

In order to approach Vietnam’s market, they have to use their prestigious brands or forge joint ventures with Vietnamese companies.

Nicolas Audier, chairman of EuroCham, told VIR that enterprises around the world are feeling the impacts of the current health crisis, and Vietnam is no different.

“From the perspective of business during this difficult time, what matters now is that the effects of the virus are mitigated as much as possible to enable both domestic and foreign companies – and their workers – to weather the storm and maintain Vietnam’s recent strong economic performance,” he said.

“In this light, the measures outlined – including access to capital, cutting administrative procedures, and improving the business environment – will help businesses and, in turn, the wider economy.”

He added that EuroCham’s Tourism and Hospitality Sector Committee has written to the Vietnamese government to recommend a number of measures to support travel firms, including an immediate tax break for affected tourism businesses for 2020, reductions in land-lease payments, and interests free loans and credits.

Gloomy forecasts

In the context of COVID-19 last week declared a pandemic by the World Health Organization, Vietnam is looking to improve its business climate more strongly to attract more investment. Over the past few weeks, grey forecasts for the global economy are projected to take a heavy toll on the Vietnamese economy, which stands fairly open to the global economy.

Last year, while the country’s total GDP was $250 billion, its export and import turnover hit $517 billion.

The Asian Development Bank has released a report on economic impacts of the outbreak on developing Asia, with Vietnam expected to suffer from a 0.41 per cent decrease in GDP this year.

This means the country may lose about $3.7 billion and some 750,000 jobs. The biggest sufferers will be the public trade-business and service sector (over $1 billion), the transportation sector ($922 million), and the production-construction sector ($836 million).

The Organisation for Economic Co-operation and Development has also warned that an escalation in the outbreak could make global GDP growth plummet this year to as little as 1.5 per cent, almost half the 2.9 per cent rate it forecast before the outbreak took hold.

A series of major economies that have great impacts on global supply chains and on Vietnam’s economy are expected to suffer from lowered forecasts this year, such as Europe (0.8 per cent), Japan (0.2 per cent), South Korea (2 per cent), the US (1.9 per cent), and China (4.9 per cent).

Figures from Vietnam’s General Statistics Office showed that last year, these economies accounted for a large part of Vietnam’s exports, including the US ($60.7 billion), Europe ($41.7 billion), China ($41.5 billion), Japan ($20.3 billion), and South Korea ($19.8 billion).

These nations were also the main sources of imported goods for Vietnam, with China at $75.3 billion, South Korea sitting at $47.3 billion, Japan reaching $19.6 billion, Europe topping $14.8 billion, and the US at $14.3 billion.

Vietnam’s trade is now depending largely on China, which purchased 15.75 per cent of the former’s total goods value last year and was responsible for 29.7 per cent of the former’s import value in 2019.

Vietnam’s Ministry of Planning and Investment (MPI) cited a fresh calculation from Bloomberg stating that COVID-19 could cause a loss of $160 billion to the global economy, or 64 per cent of Vietnam’s GDP last year.

“Not only China, but also many other economies will likely suffer from growth decline, such as Hong Kong (1.7 percentage points), South Korea (0.4 percentage point), Vietnam (0.4 percentage point), and Japan (0.2 per cent) in the first quarter of this year,” read an MPI report on COVID-19 impacts on Vietnam’s economy.

“The outbreak will be one of the major causes decreasing Thailand’s economy to below 2.5 per cent this year. A number of high-profile reports by the Economist Intelligence Unit, Bloomberg, and Nomura also showed that the epidemic can deprive 0.5-1 per cent of Chinese growth this year, and the rate may be 2 per cent in the first quarter of 2020.”

The Ministry of Finance is preparing a draft decree to give tax relief worth over VND30 trillion ($1.3 billion). The ministry suggested to defer tax payments by five months for VAT owed by businesses between March and June. This will cost the state budget around VND22.6 trillion ($974.3 million).

The ministry also plans to extend the tax payment deadline for individuals until December 15 for value-added and income taxes worth around VND3 trillion ($129.3 million). Meanwhile, another VND4.5 trillion ($194 million) in land-use fees will be deferred until October 31. The ministry expects that the government’s revenue is unlikely to be affected by the deferral given that businesses and individuals have to fulfill their tax obligations before the end of the year.

As the economy is reeling from the current pandemic, the tax relief measures are expected to offer a good stimulus for businesses and individuals in the field of agriculture, forestry and seafood, food processing, textiles, footwear, leathers, electronics, auto, aviation, railroad, roads, logistics, restaurants, and tourism.

By Tung Van

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