Fiscal action to offer efficient support access

August 26, 2021 | 08:00
To help achieve its desired economic growth target, the National Assembly Standing Committee is expected to sign off on a new fiscal initiative that will aim to benefit the business community and individuals. However, exactly how this scheme will spur on domestic production remains in question.
Fiscal action to offer efficient support access
Vietnam needs to devise urgent solutions to help enterprises move forward. Photo: Le Toan

Over the past weeks, Tung Huong Trade and Investment JSC in Hanoi has had to lay off 200 workers at its two workshops producing pincers and files. The reason is that demand for the products has reduced and the company’s input suppliers have also shrunk production due to shortages of workers caused by the health crisis.

“Since April, our company’s revenue has slashed by 70 per cent on-year,” said Nguyen Van Tung, vice director of the company. “The products are not essential ones, so consumption is going down amid the pandemic.”

Previously the company, established 10 years ago, enjoyed an annual average rise of 15-20 per cent on-year in revenue and profits. It used to employ about 400 workers, with an average income of VND10-12 million ($435-520) a month.

“However, income has been reduced by 40 per cent and we can only afford to keep around 200 workers,” Tung said. “But we cannot act otherwise. COVID-19 is driving enterprises like ours into bigger difficulties.”

The company’s plight is now common in Vietnam, especially in big industrial hubs such as Hanoi, Thai Nguyen, Bac Giang, Haiphong, and Quang Ninh in the north and Ho Chi Minh City, Dong Nai, and Binh Duong in the south, where hundreds of thousands of enterprises are struggling to stay afloat.

However, Tung’s company is also luckier than so many others. The General Statistics Office reported that in the first seven months of this year, COVID-19 forced nearly 80,000 businesses, both Vietnamese and foreign-invested ones, to temporarily stop business and production activities and complete procedures for dissolution, up 25.5 per cent on-year. On average, around 11,400 enterprises were kicked out of the market every month.

“Difficulties are continuing attacking businesses and they need support from the state. We must urgently devise sound policies to assist them,” said Prime Minister Pham Minh Chinh at a meeting with ministries, agencies, and localities held online over a week ago.

The Ministry of Planning and Investment forecast that without support, enterprises’ activities will become more difficult, and the trend of firms withdrawing from the market will continue at a high level.

New lifebuoy

The National Assembly Standing Committee is expected to soon enact a resolution on tax exemption and reduction to support individuals and businesses badly affected by COVID-19.

The Ministry of Finance (MoF) is simultaneously working on a draft of the government’s decree guiding the implementation of the resolution right after it is adopted.

Under the draft resolution, four policies have been proposed, including three groups of policies advanced for the first time since the pandemic appeared in Vietnam.

Specifically, in the first policy, the government will keep a 30 per cent reduction of corporate income tax (CIT) in 2021 for businesses, cooperatives, non-business units, and other organisations as applied in 2020.

Meanwhile, under the three upcoming new policies, there will be a 50 per cent reduction of personal income tax (PIT), VAT, and other taxes arising from business activities in the third and fourth quarters of 2021 for households and individuals doing business in all sectors, geographical locations, with different forms and methods of tax declaration and payment.

There will also be a reduction of 30 per cent for VAT for business activities in the sectors seriously affected by COVID-19 such as tourism, transportation, hospitality and catering, sports and entertainment, art, media, libraries and museums, and other cultural activities.

What is more, there will also be exemption of the late payment of interest arising in 2020 and 2021 for businesses and organisations, including their dependents and business locations, incurring continuous losses in 2018, 2019, and 2020.

“It is estimated that the implementation of these policies under the draft resolution can cause a VND20 trillion ($869.5 million) dent in state budget revenues,” explained Nguyen Quoc Hung, director of the MoF’s Department of Tax Policies.

In addition, the MoF has also submitted to the prime minister a 30 per cent decrease in land rental in 2021 for those hit by the pandemic.

“It is calculated that under the policies promulgated by the National Assembly Standing Committee, the government, and the MoF since early this year, and under the new policies in the draft resolution, the total value of reduced taxes, fees, and land rental for pandemic-hit businesses and people is over VND138 trillion ($6 billion),” Hung said.

On April 19, the government signed and promulgated Decree No.52/2021/ND-CP on extension of time limits for payment of VAT, CIT, PIT and land rental in 2021. This decree took effect on the signing date.

“The total size of the package was estimated at VND115 trillion ($5 billion). If implemented well, it is expected to help businesses and households maintain their economic activities, particularly in tourism, which remains in a depressed state,” said a World Bank bulletin on Vietnam’s economy.

Specifically, Decree 52 extends the time limits for payment of the payable VAT amount of the tax periods of March-August 2021 in the case of making monthly VAT declaration, and the tax periods of the first and second quarters of 2021 in the case of making quarterly VAT declaration. The extension duration is five months for the VAT amount of the tax periods of the first and second quarters of 2021; four months for the VAT amount of the tax period of July 2021; and three months for the VAT amount of the tax period of August 2021.

Since the second quarter of 2020, the government has also been deploying some drastic measures to support businesses. For instance, the State Bank of Vietnam has deployed a package worth VND180 trillion ($7.82 billion) for businesses and households in the form of debt payment deferral and preferential loans. However, no concrete reports on how this huge package have been carried out have been revealed as yet.

Expectations

Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam, told VIR that along with local companies like Tung Huong Trade and Investment JSC, many foreign firms including 9,300 South Korean businesses employing over one million workers in Vietnam have been bogged down in woes caused by COVID-19.

“If the draft resolution of the National Assembly Standing Committee is adopted, it will be very good news for all enterprises and those living and working in Vietnam,” he said. “COVID-19 has caused great losses for South Korean firms. Many in the southern region have been suffering losses from hundreds of millions to billions of US dollars. Many global brand names like Nike and Adidas have delayed their orders from South Korean firms in Vietnam as they don’t know when the pandemic will end in the country.”

“We expect that the new fiscal policies will take effect immediately and feasibly, not like some other policies that have taken lots of time to be implemented.”

Andrew Jeffries, country director for Vietnam of the Asian Development Bank, told VIR that it welcomes any support from the government for the public and enterprises amid the pandemic.

“There has not been sufficient fiscal support from the government. The support was mainly in the form of deferral of taxes and land rental payment, and the size of the support remained modest, as compared with other countries with fiscal support of up to 15-20 per cent of GDP like in France, the UK, or Singapore,” Jeffries said. “For some businesses that were heavily affected by COVID-19 with revenue deterioration and no profit, deferral of VAT and CIT have fewer impacts than direct fiscal support measures.”

As for businesses like Tung Huong Trade and Investment JSC, vice director Nguyen Van Tung also hoped that the new policies from the National Assembly Standing Committee will soon become true. “If they are realised, we will be able to save some money which will be used to invest into production,” Tung told VIR. “However, I also wonder if there will be any hurdles for enterprises to benefit from the new policies.”

For example, he recalled, the government has since April 2020 been applying a VND62 trillion ($2.69 billion) package to support unemployed people and businesses directly hurt by COVID-19, but those like his company have never been able to approach it.

As of May this year, only VND13.1 trillion ($569.5 million) of this package was disbursed due to various complicated procedures, according to the Ministry of Labour, Invalids, and Social Affairs.

By Khoi Nguyen

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional