Vietnam Regulatory Brief: Business Climate Improvements, Foreign Currency Credit, and Auto Import Taxation
New Resolution Passed to Improve Business Climate
The Vietnamese government recently issued a resolution listing measures aimed at improving the business climate and competitiveness within the country. Resolution 19-2016/NQ-CP passed on April 28 and seeks to propel Vietnam into the top-four ASEAN member states in terms of business climate. The resolution lists out plans from 2017 until 2020 and highlights the importance of changing trade regulations and government management of import-export products. The resolution aims to simplify administrative procedures and strike down outdated economic laws. Ministries will need to prepare action plans to achieve the goals set by the resolution by May 30.
The new resolution lists out several changes, the details of which are as follows:
- Issuance of building permission and relevant papers in less than 77 days.
- Registration of property possession in less than 14 days.
- Maximum time to handle contract disputes to be reduced to 200 days.
- Processing of bankruptcy cases in 24 months instead of five years.
- Maximum customs duration of 10 and 12 days for exports and imports respectively.
In addition, tax reform, including tax refunds and petition tackling are also expected; however the details have not been announced yet. If Vietnam is able to successfully implement the resolution, the share of foreign investment that it will attract is expected to rise exponentially. The resolution bodes well for investors that plan to invest in the country and for companies that are currently operating in Vietnam.
New Regulation to Tighten Foreign Currency Credit
The State Bank of Vietnam (SBV), has issued a new regulation to limit foreign currency credit to firms. Circular 24/2015/TT-NHNN issued by the SBV states that commercial banks would not be allowed to extend loans in foreign currency to companies that do not need it for offshore payments. The rule came into effect on March 31.
The SBV said that the new regulations would only apply to firms that frequently take foreign currency loans from banks and later convert it to Vietnamese Dong (VND) to use for reasons other than offshore payments. Monetary analysts believe that the new rules will help to stabilize exchange rates and strengthen the VND. However, the new regulations may also severely limit funding options for some companies in Vietnam. Dezan Shira & Associates notes that a few listed companies are planning to counter the new regulations by calling for new funds or issuing corporate bonds. The regulation from the SBV is the part of a larger anti-dollar drive by Vietnam’s central bank.
Tax Policy Change Affects Auto Importers
Auto importers in the country have complained against recent changes in tax policy. Around 10 auto manufacturers in the country sent a petition to the Prime Minister Nguyen Xuan Phuc, relevant ministries, and related agencies to complain about proposed changes to the calculation method used for special consumption tax on completely-built-up (CBU) autos. The manufacturers complain that the changes make their business plans unviable.
Currently, the tax calculation method, effective from January 1 2016, is in line with government’s Decree 180/2015/ND-CP and the Ministry of Finance’s Circular 195/2015/TT-BTC, where the special consumption tax is based on the prices of imported autos plus 5 percent. However, from July 1, a new law regarding taxes on imported autos will take effect and change the special consumption tax. In addition, the auto importers complain that detailed information about the execution of the new method is currently unavailable.
The change in calculation methods twice in the span of six months is expected to cause unnecessary fluctuation in the market and tax collections. While, the exact impact on the car dealerships and consumers is not clear yet, the change in the tax laws will certainly push up auto prices. The frequent changes in tax laws necessitate a cautious approach for companies planning to enter Vietnam’s auto industry and for those already operating in it.
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