Fiscal improvements stepped up to stimulate economy

The National Assembly has asked the government to step up the implementation of big economic and investment goals for the rest of this decade

The National Assembly Economic Committee last week revealed that a hallmark policy enacted at the start of the year has yet to have the intended effect.

“All national target programmes and tasks to implement the fiscal and monetary policy in service of the Programme on Socioeconomic Recovery and Development (PSRD) are being deployed slowly and important policies are only now in the stage of drafting guidance and have yet to be put in practice, such as the lending rate support policies for enterprises, and the large-scale programme on providing computers for pupils, among many others,” the committee (NAEC) reported last week.

At its first extraordinary session in January, the 15th National Assembly (NA) promulgated Resolution No.43/2022/QH15 on fiscal and monetary policy to support the PSRD for 2022-2023, with an estimated value of $15 billion. The policy is expected to enable the economy to achieve a higher level of growth, at 6.5-7 per cent in the 2021-2025 period.

In order to ensure sufficient capital for implementing the resolution, the government was to conduct radical savings in expenditure from the state coffers. Moreover, state budget revenue must be increased via different solutions including the boosting of tax reforms; fighting against revenue losses, transfer pricing, and tax evasion; and divestment and equitisation of state-owned enterprises.

The policy covers five key components, including re-opening the economy pertaining to enhancing medical capacity, and pandemic prevention and control ($2.6 billion); ensuring social welfare and employment ($2.31 billion); assisting enterprises’ recovery, cooperatives, and business households ($4.78 billion); developing infrastructure ($4.95 billion); increasing institutional and administrative reform, and improving the investment and business climate. Moreover, another $434.8 million will be mobilised from non-state budget financial funds.

Under the resolution, VAT for applicable goods and services is to be reduced to 8 per cent in 2022, excluding goods and services in the sectors of telecommunications, IT, finance and banking, insurance, stock, real estate business, metal production and mining industries (except coal), coke production, petroleum, chemicals, and commodities and services that are subject to special consumption tax.

“Under this programme, overall planned on-budget fiscal measures are an estimated 4.5 per cent of revised GDP. On the revenue side, the inclusion of tax and land rental deferrals reflects the relative success of these fiscal tools,” commented the World Bank in its February bulletin.

This policy is expected to help Vietnam’s GDP increase by an additional 2 per cent this year, meaning 8-8.5 per cent as expected by the NAEC. So far, GDP for the first quarter increased to 5.03 per cent, higher than that of the same periods in 2021 (4.72 per cent) and 2020 (3.66 per cent).

Snail’s pace

But, besides a VAT reduction already applied, while the government has so far submitted a scheme to supplement $797.78 million for approved projects listed in the country’s middle-term public investment plan, this sum is equal to only 16 per cent of the needed capital. This will cause great pressure on public investment disbursement and increase the budget deficit in 2023.

Moreover, the government has yet to submit to the NAEC a shortlist of projects funded by the PSRD. “This is too slow, remarkably reducing the effectiveness and significance of the PSRD,” the committee noted.

For example, the Ministry of Finance is now seeking comments from relevant ministries and agencies on a draft decree on extending the time for paying corporate income tax, VAT, special consumption tax, and land rental within 2022.

“Meanwhile, production and business activities of enterprises and people are facing big difficulties. Many supply chains continue to be affected, while prices of input materials are increasing,” Deputy Prime Minister Le Van Thanh told the NA last week.

In its report sent to the legislature, the government admitted that it has been slow for the projects funded by the PSRD to be submitted to the National Assembly Standing Committee (NASC). The government explained that the majority of these projects are new ones that would need time for completing investment procedures as required by the Law on Public Investment. Only after they meet all conditions can they be submitted to the committee for discussion and approval in terms of capital.

At a meeting on May 11, NA Chairman Vuong Dinh Hue expressed his big concern over the slow-paced implementation of the $15 billion policy. “In line with the legislature’s resolution, if the policy fails to be disbursed until 2023, the NA should quit it, without transferring the capital to another package which is not an economic stimulus one,” Hue stressed.

The NAEC asked the government to expedite all fiscal and monetary solutions under Resolution 43. “It is necessary for the government to soon submit to the NASC a shortlist of projects to be funded by the PSRD, so that enterprises and people can soon enjoy more assistance,” said NAEC chairman Vu Hong Thanh.

Actions in the pipeline

According to the NAEC, it is expected that in order to reach a new economic growth rate of 8-8.5 per cent for this year – as well as to reach an average growth target of 6.5-7 per cent for 2021-2025 – it is imperative to effectively implement the PSRD and many other solutions.

DPM Thanh underlined the need for the government and localities to increase investment in transport development.

“The government will accelerate the speed of construction of a synchronous strategic infrastructure system on transport, energy, digitalisation, agriculture, commerce, healthcare, culture, and education,” he said. “Relevant ministries, agencies, and localities must make all possible efforts to implement key national projects in order to create new momentum for socioeconomic development.”

Specifically, the government will try to complete at the end of this year the construction of over 360km of the eastern North-South Expressway’s first phase – including Mai Son-National Highway No.45, Cam Lo-La Son, Vinh Hao-Phan Thiet, and Phan Thiet-Dau Giay. In the fourth quarter of this year, construction of 12 eastern North-South highway projects for the second phase and construction of Long Thanh International Airport in the southern province of Dong Nai will commence.

As of mid-April, the total cleared land for the airport project stands at 83.36 per cent. This airport, expected to cost about $14.5 billion, will be built in three phases over three decades. In the first phase, one runway, taxiways, an apron, and a passenger terminal with other auxiliary works sprawling 373,000 square metres will be built to serve 25 million passengers and 1.2 million tonnes of cargo each year.

Besides that, Thai Binh 2 Thermal Power Plant will also be put into commercial operation in the northern province of Thai Binh. Invested in by PetroVietnam, the 1,200MW plant is an important component of the Thai Binh power centre. PetroVietnam Construction JSC is the engineering, procurement, and construction contractor with a $1.2 billion contract. The construction was started in 2011 with operations expected to start in 2020, but the project has been delayed by recent global events.

DPM Thanh added that the government will also submit to the NA considerations for adopting five national inter-regional highway projects, which include Chau Doc-Can Tho-Soc Trang, Bien Hoa-Vung Tau, Khanh Hoa-Buon Ma Thuot, Ho Chi Minh City’s Ring Road No.3, and Hanoi’s Ring Road No.4.

To encourage foreign investment, Vietnam has offered many investing and tax incentive schemes. For example, the new Law on Investment introduced a preferential corporate tax rate of 5 per cent for a maximum period of 37.5 years for large or especially encouraged projects.

“Vietnam continues to assert itself as an attractive destination that offers numerous opportunities for businesses and investors,” Prime Minister Pham Minh Chinh recently told foreign investors at a meeting. “In infrastructure alone, Vietnam has a great demand for investment between now and 2030, totaling up to $30 billion per annum. The stability and robust development of the Vietnamese economy offer numerous opportunities for investors worldwide.”