Remedies crafted to soothe out-of-reach business goals

Factories across many sectors are straining to reach full capacity again, after shutdowns and other pandemic-related issues, photo Le Toan

This week, the National Assembly (NA) will adopt the country’s 2021-2025 Economic Restructuring Plan (ERP) with a raft of solutions to drive the economy forward, with better growth quality to ensure Vietnam can become a higher middle-income nation by 2025. The average annual economic growth rate for the period will be 6.5-7 per cent.

“Efforts are to be made to create around 1.5 million operational businesses by 2025, including 60,000-70,000 medium- and large-sized ones,” stated the plan.

By 2025, it is expected that private enterprises will generate 55 per cent of GDP, up from 43 per cent now. Making such a target will help the government take the initiative in designing proper policies to manage the economy and formulate solutions to spur enterprise performance.

However, Vu Hong Thanh, Chairman of the NA’s Economic Committee, argued that this target may be out of reach as almost all enterprises in the economy are struggling due to the pandemic, and it would take a very long time for them to recover and regain strength in growth.

“Over past months, COVID-19 has led to a strong rise in the number of businesses that have stopped operations, dissolved, or gone bankrupt. Business and production activities are facing massive difficulties, with enterprises’ financial capacity waning significantly,” Thanh said.

The General Statistics Office reported that since July, the number of businesses affected by COVID-19 and kicked out of the market or completing procedures for dissolution has been larger than the number of newly-established enterprises – especially in Ho Chi Minh City, the country’s key economic machine.

On average, about 9,700 enterprises nationwide have left the market every month in the first 10 months of 2021.

According to the Ministry of Planning and Investment (MPI), which compiled the new ERP, enterprises leaving the market can be seen in all economic sectors, but most affected have been wholesale and retail, automobile and motorbike repairs, manufacturing and processing, construction, hotels and catering, property businesses, and education and training.

Infeasible dream

According to the Economic Committee, as of late June there were about 820,000 operational enterprises, but the negative impacts of COVID-19 are expected to linger in the economy. “Based on the speed of increasing the number of businesses in the economy and forecasts on the economic recovery outlook, it would be suitable if the target of total enterprises is set at about 1.3 million enterprises by 2025,” said a committee report on assessing the draft ERP.

NA deputy Hoang Thi Doi representing the northern province of Son La agreed that the target of 1.5 million enterprises will be difficult to reach.

“The pandemic remains complicated and the number of enterprises with stopped operations or dissolving has continued to increase,” Doi said. “The future for economic recovery remains uncertain, thus it is strongly suggested that this target be revised.”

Another NA deputy, Nguyen Thi Kim Be representing the southern province of Kien Giang, noted that the draft ERP does not seem to take into account the fact that there is no end to the pandemic yet. “A target of 1.5 million operational enterprises by 2025 will not be reached. More thorough analysis on the target and enterprises’ existing performance is needed now,” Be said.

In Vietnam, the private sector is to be encouraged for development in all sectors not banned by the law, especially in the sectors of production, business, and services. It is already being supported in developing large private-owned companies and groups with high competitiveness.

The number of private operational firms rose strongly from nearly 269,000 in 2010 to over 647,500 in 2019, and in the 2015-2020 period, the number was more than 735,000. In the first 10 months of 2021, about 93,700 enterprises were newly established, with total registered capital of $56.71 billion, using 707,700 labourers – down 15.7 per cent in the number of enterprises, 18.2 per cent in registered capital, and 16.8 per cent in the number of labourers, all on-year.

Newly-proposed remedies

Minister of Finance Ho Duc Phoc revealed that in addition to fiscal packages already to support enterprises, his ministry (MoF) is mulling over another package valued at VND20 trillion ($869.56 million) that will be enacted by the government. This package will be implemented in the form of lending rate reduction and exemption.

In April, the government released Decree No.52/2021/ND-CP on extending the deadline for VAT, corporate income tax (CIT), personal income tax (PIT), and land rental fee payments in 2021 for enterprises, business households, and individuals.

Under this decree, there is a 5-month extension for VAT payments from March-June 2021, four months for VAT payable from July, and three months payable from August.

The estimated payable amount for CIT in Q1 and Q2/2021 will be extended for three months. Regarding VAT and PIT for household businesses, the total tax payable for 2021 will be extended to December 30, while land rent amounts from the beginning of 2021 will be extended for six months from May 31, 2021.

“The total value of the reduction and exemption of these types of taxes amounts to about VND118 trillion ($5.13 billion),” stated Minister Phoc.

The government on October 27 also enacted Decree No.92/2021/ND-CP detailing implementation of the NA Standing Committee’s (NASC) Resolution No.406/NQ-UBTVQH15 on solutions to support enterprises and people affected by the pandemic.

Specifically, business households and individuals operating in all business lines that were affected in 2021 (according to the list made by chairpersons of people’s committees of provinces and centrally-run cities) shall be exempted from payable PIT, VAT, excise tax, royalties, and environmental protection tax arising from production and business activities of the months in the third and fourth quarters of 2021.

According to a government report, the total value of all fiscal solutions that have and will be enacted by the NASC and the government in 2021 will be about VND140 trillion ($6.08 billion).

Currently, the MPI is drafting a hallmark programme on the national socioeconomic recovery at a total potential value of nearly $35 billion under different forms of assistance for individuals and enterprises. The programme will be discussed and adopted by the legislature at the end of this year (see page 2).

“In 2021, the coronavirus outbreaks have had direct negative impacts on all economic hubs and urban areas nationwide, affecting all the process of restructuring sectors and the whole economy. Enterprises in many sectors have been hit hard, and they must be supported timely before they can recover and develop,” stated the draft ERP.

According to NA deputy Dinh Ngoc Minh, representing the southernmost province of Ca Mau, one of the key solutions to support enterprises now is to reduce business conditions.

“There are still too many, and some sectors are now subject to about 500 conditions,” Minh said. “It is suggested that the NA formulate a resolution on developing private businesses in the 2021-2030 period, with doors to be opened more widely for them. There should be a 50 per cent reduction in business conditions and in administrative procedures.”

The NA should also enact a demand stimulus package worth 10 per cent of GDP, Minh said, to develop key infrastructure projects such as expressways, seaports, and airports connected with other infrastructure. “This will help create more employment and enable transport of goods more favourably,” he added.