Vietnam Market Watch: Tax Reform, Foreign Companies, and Increased Credit for Land Administration Projects
Reforms in Tax Sector Likely
The tax authorities plan to create regulations to prevent tax losses and enforce transfer pricing as announced by the Deputy Minister of Finance on July 8. The regulations will create a legal framework to restructure the tax sector. Authorities also plan to improve competitiveness and implement administrative reforms by focusing on e-tax payments and building data on taxpayers. In the first six months of the year, tax collections from individuals and corporate incomes increased from 12 to 16 percent. Between January and June, tax collections in Da Nang and Ho Chi Minh City increased from 18 to 22 percent.
Taxes paid by foreign companies reached 49 percent of previously set targets. Tax officials have monitored businesses to correct incomes and have also helped firms in preparing tax reports. In addition, the Finance Ministry is also preparing a proposal to reform corporate income taxes for small and medium-sized companies. If approved, the regulation will apply from January 1, 2016 to 2020. The draft proposes two types of corporate income tax – 17 and 15 percent from the present 20 percent. The proposed reforms are in line with the government’s Resolution 19, which aims to improve the business environment in the country. Resolution 19 will put Vietnam on par with the top four ASEAN countries in the implementation of tax procedures by 2020.
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Foreign Exporters Trump Domestic Companies
Officials at the Finance Ministry have stated that Vietnamese companies are not taking advantage of trade agreements to increase exports and are thus losing out to foreign companies. According to the Vietnam Business Report 2015, foreign companies accounted for 71 percent of the country’s exports, with the market share of local firms dwindling. In the beginning of the year, domestic companies’ exports grew by 3.9 percent to US$ 19.44 billion compared to foreign entities, which reported growth of 7.7 percent.
Analysts have stated that, while the government has offered several incentives, domestic companies have been unable to cope with the challenges. Most domestic small and medium sized companies are disjointed from global value chains. To make things worse, from 2017, domestic companies will not be able to borrow in foreign currencies, a significant issue considering the fact that domestic loans carry much higher interest rates. While the country’s exports are likely to suffer due to weakening global conditions, domestic demand is likely to help the Vietnamese economy during the second half of the year, according to a report by HSBC. The gap in exports by domestic companies is something foreign companies can further take advantage of.
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Credit Boost to Land Administration Reform Projects
The World Bank approved and extended credit of US$ 150 million to reforms of Vietnam’s land administration services. The funds will go to the Vietnam Improved Land Governance and Database Project, which aims to make land database available to the government and the public. The project will build databases that are accurate, user-friendly, and accessible. In addition, the project will help the government simplify procedures and business processes for Land Registration Offices at sub-national levels, and increase public awareness of land information and services. The project is expected to be gradually deployed in the communes of Thai Nguyen province.
Investors will be able to see information regarding status of the land, contractual requirements, and procedures without having to physically see the land location. The increased funds will be a boost to the project. If successful, similar projects can also be applied to other developing countries, such as India, where buying land can be contentious.
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