Untying the knots hampering supporting industry growth

October 24, 2021 | 14:00
Developing supporting industries is one of the most important solutions for Vietnam to improve the quality and competitiveness of the economy, develop sustainably, and avoid the middle-income trap. Therefore, the government has been making efforts to promote this development through the revision of many important policies in a strategic, comprehensive, and synchronous manner.
Untying the knots hampering supporting industry growth
Vu Thu Nga, Tax partner, Deloitte Vietnam

Last year, the government issued Resolution No.115/NQ-CP, considering the first comprehensive document on supporting industry development policy. More recently, Decree No.57/2021/ND-CP was issued to help remove obstacles to corporate income tax incentives for enterprises with manufacturing prioritised supporting industry products established before 2015.

The government’s efforts to develop and complete the legal framework for supporting industry gradually have a positive spillover effect on psychology as well as decisions on investment, expanding production, and trading of supporting industry products. They attract many businesses to join the supporting industry, which contributes to fostering the domestic system.

However, in practice, some regulations still reveal certain limitations. Therefore, actions are required to get these limitations improved to keep up with practical requirements, and maintain consistency and synchronisation with the provisions of laws on investment, tax, and supporting small- and medium- sized enterprises.

The most recent action from the Ministry of Industry and Trade (MoIT) was drafting an amendment to Decree No.111/2015/ND-CP from 2015 on supporting industry development to widely seek opinions of organisations and individuals, as per the requirements of Resolution 115.

With many years of experience in consulting supporting industry enterprises, as well as being a trusted think-tank for the government on policy development in this area, we propose several matters that should be amended and supplemented in the amended Decree 111.

Firstly, it is necessary to clearly stipulate that the processing activities of supporting products prioritised for development are also on the eligible list for incentives. As Deloitte Vietnam has observed in consulting practices, many processing enterprises understand that Decree 111 only applies incentives to production activities, thus they may face many difficulties in applying for confirmation and applying the incentives.

Secondly, it is necessary to review and re-evaluate the supply chain and value chain to supplement new supporting industry products to the list that should be prioritised for development to suit the actual situation.

Furthermore, a number of provisions in the decree need to be revised to be consistent with regulations on investment and tax. For example, regarding the objects of incentives, it is recommended to amend and clarify the criteria “expansion investment projects with production capability increase by at least 20 per cent” to ensure compliance with the provisions of the Law on Corporate Income Tax.

In addition, there should be a consideration on supplementing preferential and supporting policies for businesses such as credit support, environmental protection support, and support on legal matters, assessments, inspections, and quality certification.

Next, research must be carried out to amend and supplement preferential conditions to be more selective to attract quality and effective supporting industry projects, ensuring the green and clean development goals of the government. Examples include export potential, application of modern production processes and quality management systems, meeting national and international standards, advanced machinery and equipment technology, and quality of human resources.

Changing policies in the above direction will create favourable conditions for supporting industry enterprises to make innovations, access capital, and improve competitiveness in order to participate more deeply in the global value chain, especially in the context that the supply chain is being re-designed due to the adverse impacts of the pandemic.

However, stricter requirements on technology, production process, and labour quality to enjoy supporting industry incentives will also bring many challenges to businesses, especially Vietnamese enterprises. They should proactively review the current conditions to assess the possibility of enjoying incentives, and initiate an action plan to improve the conditions to increase incentive qualification possibilities.

At the same time, businesses should study and stay ahead of policy changes, consider their impact on enterprises’ chances of enjoying incentives, and propose necessary solutions and an appropriate strategy to apply them.

The problems in practical application and corresponding policy recommendations also need to be reflected and proposed to the MoIT as well as business associations so that the supporting industry development policy can be amended and supplemented in a timely and highly practical manner.

By Thu Nga

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