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Viet Nam offers extreme opportunities and challenges. On one hand, it is the one of the fastest growing economies in ASEAN, with rising urbanisation, an emerging middle class, and a young, dynamic, English-speaking labour force. On the other hand, Viet Nam still ranks low for ease of doing business because of its regulatory environment.
Recent participation in over 40 bilateral and multilateral trade agreements has attracted a large amount of foreign direct investment (FDI) into Viet Nam each year, and is one of the main drivers of the economy. Besides the existing framework of tax incentives and an improving record on transparency, external commitments with international trading partners have been a powerful influencer in keeping Viet Nam’s domestic reform programmes on track.
APEC’s role in facilitating regional integration has proven indispensable into promoting economic and trade growth in the Asia-Pacific region, including Viet Nam. Free trade agreements are the cornerstone for reducing trade barriers between economies, which assist in harmonising standards and regulations. Reducing trade barriers between members, harmonising standards and regulations, and streamlining customs procedures have enabled goods to move more easily across borders.
Intra-regional trade of APEC increased over seven times and reached $20 trillion in 2015 – outpacing the rest of the world. During this same time period, average tariffs fell from 17 per cent in 1989 to 5.6 per cent in 2014. The number of 0 per cent intra-APEC tariff lines increased from 27.3 per cent in 1996 to 45.4 per cent in 2014.
Above all, APEC has created effective networks for communication among officials, researchers, and businesses, which has built significant mutual trust and mutual respect. The APEC Business Travel Card is a simple but powerful APEC initiative that facilitates the movement of business travellers across the APEC economies, including in and out of Viet Nam.
Tax reform: The fulcrum of co-operation
Taxation was clearly cited as one of the impediments towards maximising the full growth potential for APEC, and creating jobs in the region. The competitiveness of economies at the level of inter-regional and international investment is significantly influenced by taxation policies.
Adopting internationally-agreed tax transparency standards and signing relevant instruments is key to help address cross-border tax issues more effectively. One example is the adoption and implementation of the Base Erosion Profit Shifting (BEPS) in APEC economies. All APEC members are aware of the significance of BEPS and its implications to fairness and effectiveness of the international tax systems and governments around the globe.
Marking the active leadership in its role of host and chair of the APEC Finance Ministers’ Process in 2017, Viet Nam was the 100th jurisdiction to join the Inclusive Framework on BEPS (IF) held at the third plenary meeting of the IF on June 21-22, 2017 in Noordwijk, the Netherlands. Viet Nam’s participation has been widely recognised in the support of the BEPS Project and its consistent implementation throughout APEC economies and represents another important step forward in the international tax arena as well as in the Asia-Pacific region.
Moving forward, Vietnamese tax reform must enforce the implementation of internationally-agreed standards of transparency and exchange of information in the tax area, as committed when Viet Nam joined the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the Global Forum on Transparency and Exchange of Information for Tax Purposes. Being part of these international forums will provide Viet Nam with further support in facilitating the implementation of agreed minimum standards, as well as the peer review processes.
Critical tasks at hand
One of the critical elements of the APEC agenda in promoting regional economic integration is by improving workforces’ capabilities, strengthening social protection, and addressing inequality among APEC member economies.
These activities, which require appropriate support from relevant stakeholders including governments and the industries, enable business and government leaders to improve their competitiveness through upgrading skills and knowledge to better support trade and investment. Similar to other developing economies, Viet Nam is also facing a shortage of skilled labour and the ongoing demographic change may exacerbate this problem.
There is no shortcut but to focus on strengthening human resources development and broadening access to education. Through the exchange of information on labour market measures, good practices and policy tools, Viet Nam can help address these challenges more effectively so all citizens and vulnerable groups could have equal opportunities to share the benefits of economic growth.
APEC at the heart of local efforts
APEC members account for 78 per cent of FDI, 75 per cent of trade in goods, and 38 per cent of official development assistance in Viet Nam, making it one of the most important multilateral forums for the country.
The support and active participation of APEC member economies and regional and international organisations for APEC 2017 efforts will be a lever for Viet Nam to build trust and appreciation among international partners.
Yet APEC still has immense growth opportunities, along with many challenges. For instance, infrastructure gaps in some parts of the region and some member economies are on the order of trillions of dollars. Funding these projects requires commitment and co-operation between governments, development banks, and the private sector. In addition, reviewing existing domestic policies on the protection of ‘sensitive’ products will also help boost the trade liberalisation process.
Through integrating the long-term APEC goals into its development roadmap, the Vietnamese government is committed, for genuine reasons, to pushing on with market liberalisation and other reforms such as reforms to the state-owned enterprise sector, government procurement, labour representation, intellectual property rights, e-commerce, and the digital economy.
Apart from anything else, Viet Nam recognises that reform is essential to maintaining its economic competitiveness in the region as an attractive investment destination.
Warrick Cleine is chairman and CEO of KPMG in Viet Nam and Cambodia, and is recognised as one of Viet Nam’s leading corporate advisors. He has been living in Viet Nam since 1998, playing a pivotal role in driving KPMG’s success as the leading professional services organisation in the country, with 30 partners and 1,200 employees, providing audit, tax, legal, and advisory services.