News Bulletin 38 - Week 2 November, 2020

Last week, Vietnam organized the Asean Business Summit in Hanoi attracting many business CEOs to the nation’s capital. The keynote message from Prime Minister Nguyen Xuan Phuc was “ASEAN is asserting its centrality in the region and its position as a huge market for new ideas and innovative start-ups and an attractive destination for global investors.” Vietnam in particular remains a solid investment destination that wants to set up their business in South East Asia.

Also last week, the Government issued Decree 132/2020/NĐ-CP which will “help prevent transfer pricing and limit thin capitalisation to develop a healthy investment market”, Deputy Director of the General Department of Taxation Dang Ngoc Minh said at a press conference on Monday last week.

The past week spotlight

New decree to prevent transfer pricing, limit thin capitalization

Real estate is among sectors requiring large investment. Increasing the interest expense deduction limit to 30 per cent would help enterprises have more capital for investment in the context that most firms in Vietnam were thinly-capitalised with the level of debt much greater than equity capital. Photo

The Government’s recently-issued Decree 132/2020/NĐ-CP would help prevent transfer pricing and limit thin capitalisation to develop a healthy investment market, Deputy Director of the General Department of Taxation Dang Ngoc Minh said.

Minh spoke at a press conference on Monday to introduce new points of the decree dated November 5 about tax management for enterprises with related-party transactions, saying the interest expense deduction limit was raised from 20 per cent to 30 per cent – the highest ratio recommended by the Organisation for Economic Cooperation and Development.

Increasing the cap to 30 per cent would help enterprises have more capital for investment in the context that most firms in Vietnam were thinly-capitalised with the level of debt much greater than equity capital, he said

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Let’s look at some other related financial and business news during the past week:

1. Vietnam saves US$640 million per year through administrative reform and e-government

Vietnam saves around VND14.9 trillion (US$642 million) per year as a result of administrative reforma and e-government development, according to Minister and Chairman of the Government Office Mai Tien Dung, referring to a World Bank calculation method.

Since the beginning of the incumbent government term, over 1,000 administrative procedures, 3,893 out of 6,191 business conditions and 6,776 out of 9,926 categories of goods subject to specialized inspection have been simplified or removed, informed Mr. Dung in a National Assembly hearing on November 6.

These efforts result in 18 million working days per year or equivalent to VND6.3 trillion (US$271.81 million) saved a year.

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2. Signing of mega trade deal RCEP to ensure ASEAN prosperity: PM

A new cooperation mechanism under the Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade deal, would accelerate the progress of establishing the ASEAN Business Community by 2025, according to Prime Minister Nguyen Xuan Phuc.

After eight years of negotiations, the RCEP signing would open up a new promising era of economic and trade cooperation for the ASEAN and its partners, stated Mr. Phuc at the virtual signing ceremony of the long-awaited RCEP among 15 member countries on November 15.

The ASEAN is set to become a dynamic and strong economic organization that continues to work with other partners for the shared prosperity, Mr. Phuc added.

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3. New regulations on cap on loan interest deductions released

The government on November 5, 2020 released Decree 132 on guiding tax administration for enterprises engaging in related party transactions, replacing Decree 20 dated February 24, 2017.

Dang Ngoc Minh, deputy general director of the General Department of Taxation (GDT) said at a press conference on November 9 that the regulations on cap on loan interest are being applied in Vietnam for the first time, so difficulties are foreseeable. This is because Vietnam’s enterprises have small stockholder equity and have to rely on loans to operate.

This was why on June 24, 2020, the government issued Decree 68, amending and supplementing Clause 3, Article 8 of Decree 20/2017 to ease difficulties for enterprises.

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4. Vietnam banks performance improves with economic recovery: Fitch Ratings

Vietnam banks' positive third-quarter results highlight easing pressure on asset quality and profitability on the back of an improving economic outlook, stated Fitch Ratings in a new report.

Vietnam's GDP growth accelerated to 2.6% year-on-year in the third quarter following a modest growth of 0.36% in the previous one, and the job market is on the mend after the coronavirus-induced economic shock.

Fitch expects the economy to continue to recover, helped by well-controlled local coronavirus infection rates. This bodes well for borrowers' debt-servicing capacity, and underpins the banking system's profitability in the near term, it noted.

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5. Pressure on the Finance Minister

While the Covid-19 pandemic has caused the country’s economic growth to drop to a "record-low" rate, resulting in a decline of budget revenues, the need for relief expenditures for flood-affected localities and businesses has increased more than ever.

Minister Dung said at the ongoing National Assembly session: "Budget revenue in the past 10 months only reached 75.2% of the estimate, down 10.3% compared to the same period of 2019, the lowest level in the past 10 years."

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6. MoIT carries out solutions to boost domestic market growth

In the context that the COVID-19 pandemic is affecting export, investment and tourism activities, the domestic market continues to be a bright spot in the macro-economy for short and also long-term economic growth, according to the ministry.

Therefore, the MoIT has implemented solutions to ensure a balance between supply and demand of goods and stability of the domestic market by year-end and until the Lunar New Year in 2021.

In addition, the ministry has been implementing specific programmes and measures to stimulate consumption and encourage efficient and sustainable development of the domestic market.

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7. People and enterprises at center of development efforts: PM

Vietnam and other ASEAN countries need to realize a common goal of putting the people and enterprises at the center of development efforts, according to Prime Minister Nguyen Xuan Phuc.

ASEAN member countries must grasp opportunities from a shift of global supply chains and investment capital flows to ensure the bloc’s long-term development, stated Mr. Phuc at the ASEAN Business and Investment Summit (ASEAN – BIS) 2020 held in Hanoi on November 13.

This year’s theme ‘Digital ASEAN: Sustainable and Inclusive’ will focus on the importance of the Fourth Industrial Revolution in stimulating growth, trade and investment against the backdrop of the impacts of the coronavirus and the many challenges facing the region.

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8. UK and Vietnam to develop national trade repository

On the sidelines of the 37th ASEAN Summit and related meetings, on November 12, Mr. Greg Hands, the UK’s Minister of State for Trade Policy, and Mr. Tran Quoc Khanh, Vietnam’s Vice Minister of Industry and Trade, held a virtual signing ceremony of the letter of intent to officially initiate the collaboration in developing a national trade repository (NTR) for Vietnam, which will be linked to the ASEAN trade repository.

This is a UK government funded project for Vietnam as part of the Global Trade Program under the Prosperity Fund.

Information transparency is one of the key elements of a fair business environment, especially in developing countries like Vietnam. Once completed, the NTR is expected to facilitate free trade and open markets by providing easier access to regulations and trade facilitation information; enable greater investment and interaction with global value chains in creating jobs and prosperity, and help reduce poverty and promote gender equality.

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9. Vietnam’s 4 commitments towards inclusive and sustainable development

Vietnam’s growth model has gradually shifted from an economy that is highly dependent on natural resources and cheap labor for grow towards the application of technology, science and innovation.

Deputy Prime Minister Truong Hoa Binh at the Vietnam Business Summit held on November 12 outlined the government’s four commitments to ensure the country’s inclusive and sustainable development.

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10. Potential impacts of Biden administration on Vietnam economy

Vietnam, given its large population of over 90 million and strategic location in the Asia – Pacific region, is fast becoming a major part in superpowers' policies, including the US.

Dao Tran Nhan, former Commercial Counselor of the Vietnamese Embassy in the US, told VnExpress that Vietnam will always play a role in the US foreign policy, regardless of who will become the next president.

US media on November 7 called Democratic presidential candidate Joe Biden the 46th US president after projecting his win in Keystone State Pennsylvania with 20 electoral votes, resulting in more than 270 votes needed to win the unprecedented race. Incumbent President Donald Trump's campaign has appealed vote counting in several swing states.

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