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Green shoots for economic performance prospects

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Amid the current health crisis, Vietnam’s economy has shown its resilience over past months.

Nguyen Minh Cuong, principal country economist from the Asian Development Bank, talked bout the economy’s performance and its expected outlook this year, especially for foreign direct investment.

What is your assessment of Vietnam’s eight-month economic performance in 2020?

1510p3 green shoots for economic performance prospects
Nguyen Minh Cuong, principal country economist from the Asian Development Bank

Vietnam has demonstrated exemplary success in containing the COVID-19 spread and is therefore among the first countries to fully reopen the economy domestically. However, the economy here has not been spared from the impact of the pandemic.

Growth plunged from 3.7 per cent on-year in the first quarter to 0.4 per cent in the second quarter, dragging down growth in the first half of the year to 1.81 per cent, the lowest rate since 2011.

On the supply side, growth in services fell from 6.7 per cent in the first half of 2019 to 0.6 per cent a year later as international tourist arrivals shrank by 56 per cent, slashing the contribution of services to GDP growth from 2.5 percentage points a year earlier to 0.2 points. Domestic tourism started to recover in May and June but was halted by COVID-19 resurgence in July.

Meanwhile, growth in agriculture was halved from 2.3 per cent in the first six months to 1.2 per cent a year later because of falling demand for exports but also the worst drought in 4 decades, salinity intrusion in the Mekong Delta, and livestock hit by African swine fever. Farming output expanded by only 0.8 per cent, forestry by 2.1 per cent, and fisheries by 2.4 per cent.

Growth in industry and construction plunged from 8.9 per cent a year earlier to 3.0 per cent. Growth in export-oriented manufacturing tumbled from 11.2 to 5 per cent, while output in mining and quarrying contracted by 5.4 per cent.

Restricted mobility and weak demand dragged down construction growth from 7.9 per cent in the first half of 2019 to 4.5 per cent a year later.

The purchasing managers’ index, in which a reading below 50 indicates future contraction, fell further from 47.6 in July to 45.7 in August, the lowest reading since May. August output and new orders fell even more than in July.

The slowdown was reflected in lower incomes and spending. Growth in private consumption fell from 7.2 per cent in the first half of 2019 to a marginal 0.2 per cent in the first six months of 2020. Retail sales contracted by 2.7 per cent on-month in August and 0.02 per cent in the first eight months over the same period a year earlier.

The Asian Development Bank has just revised down its forecast for Vietnam’s economic growth to only 1.8 per cent. What is the reasoning behind this move?

The global downturn and weak domestic conditions, notably worsening unemployment and falling consumption, have hurt the economy more than expected. The outlook is further threatened by a rise in new COVID-19 infections since late July.

The growth forecast for 2020 is therefore revised down from 4.8 per cent in the Asian Development Outlook (ADO) 2020 and 4.1 per cent in the June ADO Supplement to 1.8 per cent now for 2020 and 6.7 per cent for 2021. However, a 1.8 per cent remains good, especially when many nations are forecast to suffer from negative growth this year.

Vietnam’s economic outlook in the near term is difficult, with the global economic downturn and domestic weakness proving worse than expected. However, Vietnam is showing stronger resilience than most comparable economies, and the economy’s outlook over the medium and long term remains positive.

Economic fundamentals have not been impaired, and Vietnam looks likely to benefit from current trends in global patterns of trade, investment, and production.

What can be said about foreign direct investment (FDI) flows into Vietnam this year and beyond?

I think more FDI will continue coming to Vietnam which is considered an attractive market with a big population of nearly 100 million people and a growing middle class with big consumption. Vietnam is effectively improving its business climate. Looking ahead to 2021, investment will be boosted by increasing domestic consumption, improving disbursement of public investment, the continuing diversion of production from China to Vietnam, recovery in China’s economy, and the implementation of the EU-Vietnam Free Trade Agreement to greatly liberalise trade.

The Japan External Trade Organization has also released a list of 15 Japanese companies to shift their manufacturing from China to Vietnam.

The majority of those moving to Vietnam make medical equipment while the rest produce semiconductors, phone components, air conditioners, or power modules.

How can Vietnam attract more high-quality FDI?

While more Japanese firms and investors are planning to come to Vietnam, some show the intention of withdrawing from the market due to many reasons. As Vietnam’s economy has moved up the development ladder, the time to attract foreign investment through fiscal incentives such as tax-based and land-based incentives is over.

Vietnam should rather prioritise development of a business-friendly climate, seamless physical infrastructure and efficient logistics facilities, highly skilled labour, and good governance as key ingredients to lure in high-quality foreign investment.

In addition to large foreign investors, medium- and small-sized foreign investors can also be welcome as long as they can meet Vietnam’s requirements on environmental protection, technology transfer, job creation, and promotion of links with domestic businesses. In many cases, small investors can help connect with local enterprises better than bigger ones. VIR

Nguyen Thanh

Source: https://vietnamnet.vn/en/business/green-shoots-for-economic-performance-prospects-676735.html

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Businesses complain about new CIT payment regulation

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Under the new regulation, by the end of the third quarter, enterprises have to estimate the amounts of tax of the fourth quarter and pay the amounts.

Some of the Decree 126 provisions effective on December 5 related to the Law on Tax Administration, say that the total amount of corporate income tax (CIT) that enterprises temporarily pay in the first three quarters of the year must not be lower than 75 percent of the CIT amounts they have to pay for the whole year.

Businesses complain about new CIT payment regulation

This means that by the end of the third quarter, enterprises have to estimate the amounts of tax of the fourth quarter and pay the amounts instead of the end of the fourth quarter as previously applied.

Dang Ngoc Minh, deputy general of the General Department of Taxation (GDT), told the press on the sidelines of the dialogue between enterprises and customs and taxation agencies held some days ago, that the state budget has a shortage and the purpose of the budget collection is to get money to pay for state management operations, especially to allocate to provinces that cannot cover expenses.

In other words, the budget collection progress plays a very important role in the operations of many localities.

Asked if GDT has received complaints about the new regulation from enterprises, he said these are just a few enterprises and they don’t represent the whole business community.

The official stressed that the tax collection must be done in reference to the local budget management and the benefits of society.

This means that despite the complaints, GDT is still determined to collect tax as planned.

What will happen if enterprises are fined not because they did not pay tax, but just because they did not anticipate the sharp increase in the amount of tax they would have to pay in Q4?

In replay, GDT said it believes that this may happen but not regularly, because enterprises can foresee their business performance.

But enterprises disagreed with GDT about the uncommon number of cases that saw revenue soaring unexpectedly in Q4.

“GDT always sets estimates on state budget collections every year. Will it dare to affirm that it can collect 75 percent of the total budget collections of the whole year by the end of Q3?” a businessman said. “Will it be fined if it fails to do this?”

The businessman went on to explain that no business dares to set revenue targets quarterly, but they only dare set for the whole year.

“Everyone wants to fulfill yearly business plans, but unexpected things always occur. Businesses were preparing for the year-end sale season, when new Covid-19 infections were discovered in HCM City,” he said.

According to GDT, the Decree 126 will take place on December 5. This means that enterprises, seriously affected by Covid-19, will not be affected by the new regulation this year, because the deadline for temporary tax payment was the last day of October, or Q3.

“Who dares to say he will make profit this Tet sale season? With the regulation, it is still unclear which businesses will take a loss and which will make a profit, but all of them now have to make temporary tax payments,” he said.

When the Decree 20 dated in 2017 on the tax administration applied to enterprises with transactions with related parties facing businesses’ complaints, the Prime Minister has repeatedly requested to amend the decree. It took three years to do this.

The decree covers only 8,000 businesses, 83 percent of which are foreign invested enterprises and 17 percent Vietnamese enterprises.

Meanwhile, the number of businesses to be affected by Decree 126 is much higher and the businesses are from many different economic sectors which face difficulties.

The regulation will have a big impact on enterprises and lead to serious consequences, even if it is amended later.

The director of an enterprise warned that businesses that have been hit hard by Covid-19 will become even worse because of the new regulation on temporary tax payment.

“You don’t have money, but you still have to pay taxes in advance, based on the estimated profit you may make in the future. It is just like taxing dreams,” he commented.

Meanwhile, according to GDT, the Decree 126 will take place on December 5. This means that enterprises, seriously affected by Covid-19, will not be affected by the new regulation this year, because the deadline for temporary tax payment was the last day of October, or Q3.

So, enterprises will only have to make temporary tax payment in accordance with Decree 126 by the end of October 2021. 

Duy Anh

Source: https://vietnamnet.vn/en/feature/businesses-complain-about-new-cit-payment-regulation-694866.html

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Vietnam says Oct. CPI up 2.47 pct on year

Vietnam estimated its consumer price index for October jumped 2.47 percent from a year earlier.

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The General Statistics Office said in a report on Thursday that average inflation in the first ten months of this year rose 3.71 percent over the same period of last year.

October inflation slightly rise 0.09 percent against the previous month and December of 2019, the lowest growing rate since 2016.  

Increased prices in education sector and hike food prices due to floods in central region were the main driver of the month’s inflation.

Core inflation in October increased by 0.07 percent over the previous month and by 1.88 percent over the same period last year.

Average core inflation in the first 10 months of 2020 increased by 2.52 percent over the same period in 2019.

The government’s GDP growth target for this year is below 3 percent.

► Vietnam targets 2021 economic growth at 6 percent

Source: https://e.nhipcaudautu.vn/economy/vietnam-says-oct-cpi-up-247-pct-on-year-3337836/

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Vietnam’s trade surplus widens to $18.72bln in ten months

Trade surplus in the first ten months of the year has widened to $18.72 billion, with October surplus estimated at $2.2 billion, according to latest data from the General Statistics Office.

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The surplus became bigger than nine-month achievement which was reported earlier at $16.52 billion.  

In the Jan.-Oct. period, China and US remained the biggest trade partners of Vietnam. The country suffered $28.2 billion trade deficit with China since the beginning of the year.

The Southeast Asian economy exported $37.6 billion worth products to China, up 14 percent while spending $65.8 billion to buy Chinese goods, up 6.2 percent over the same period last year.

For the US market, Vietnam enjoyed $50.7 billion trade surplus in the ten-month period. The States is Vietnam’s largest export market with a revenue of $62.3 billion, up 24 percent, while imports from US dropped 2.4 percent to $11.6 billion.

Generally, in 10 months, Vietnam’s exports was estimated at $229.27 billion, up 4.7 percent, while imports was estimated at $210.55 billion, up 0.4 percent over the same period last year.

In the period, 31 items had export turnover of over $1 billion, accounting for 91.8 percent of the total export turnover and 34 items with an import turnover of over $1 billion, accounting for 89.4% of the total import turnover.

► Vietnam says Oct. CPI up 2.47 pct on year

Source: https://e.nhipcaudautu.vn/economy/vietnams-trade-surplus-widens-to-1872bln-in-ten-months-3337838/

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