Internal transactions at the heart of a cooperative economy

MPI Deputy Minister Tran Duy Dong

On the morning of March 9 in Hanoi, and with the assistance of Global Affairs Canada, the Ministry of Planning and Investment (MPI), together with Alinea International Ltd. (Canada), held an international seminar on promoting diversified and sustainable cooperative economic development in Vietnam.

Deputy Minister of Planning and Investment Tran Duy Dong said that after 20 years, a new resolution on the collective economic sector was issued, and after 10 years, the Law on Cooperatives was amended. However, there are some issues that have been raised during the development and operation of cooperatives.

"This is a good time for us to determine the right direction, remove barriers, create strong motivation, build appropriate policies, and attract participation in the collective economic sector," said Dong.

Regarding internal transactions, although there are regulations on the rate of transactions with members and non-members in the Law on Cooperatives 2012, it is not clear which transactions are internal and which are not, how accounting should work, and how to build feasible incentives and support policies.

"Therefore, at present, we do not have effective incentive policies for economic cooperation organisations, especially those providing products and services to other members," said the MPI deputy minister.

Cooperative federations are popular and play a significant role in supporting and developing cooperative economic organisations around the world.

"However, there is no such model here due to the lack of a legal framework. But in fact, federations must be established, especially for major industries, to increase the scale and create a production chain, thereby increasing competitiveness and allowing firms to reach out to more export markets," said Dong.

"Therefore, the National Assembly and the government should issue resolutions and pilot regulations to create a legal corridor for the establishment and operation of this federation model," he added.

Promoting a diversified and sustainable cooperative economy in Vietnam through internal transactions

Sharing experience on internal trading around the world, Hoang Vu Quang, an expert from Alinea International Co., Ltd. (Canada), said that in other countries, the term internal transaction is replaced by transaction with members.

Some countries do not distinguish preferences between transactions with members and transactions with non-members, such as Belgium, Finland, and Sweden. But other nations offer corporate income tax incentives for profits from transactions with members.

For example, in France, agricultural cooperatives are exempted from corporate income tax for transactions with members in the fields of production, processing, and the sale of agricultural products. In the Philippines, there is no corporate income tax on profits from transactions with members. Cooperatives only deal with members who are exempt from taxes and fees.

To Van Hau, director of the Ninh Binh Agricultural Product Processing Trade Cooperative, said that to promote a cooperative economy, it is necessary to build specific mechanisms and policies for internal transactions, even completely exempting them from internal transaction tax to encourage the participation and contribution of members.

Besides this, clarifying the role of internal transactions in the Law on Cooperatives (amended) is necessary. Vu Manh Nam from Hanoi's Cooperative Federation said that internal transactions are one of the most important economic foundations for authorities to evaluate cooperatives and apply supporting policies.

"In fact, a lot of cooperatives in Hanoi have already carried out internal transactions. However, the law does not have specific guidelines for their implementation and there are no policies to encourage the practice," said Nam. "So the solidification of internal transactions in the Law on Cooperatives (amended) will be a motivation for members to become more active in the development of cooperatives."

The MPI will carefully consider these issues while completing the draft of law, aiming to develop the cooperative ecosystem effectively.

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