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New support for enterprises needed to lessen COVID-19 impacts

30/06/2021    28

With the business community currently hurt by grave consequences caused by the COVID-19 pandemic, the government will enact new financial and technical measures aiming to continue supporting domestic production and business activities with a view to soon recovering economic growth.

The Politburo has just given the thumbs-up to the government's proposal on promulgating new policies to support employees and employers facing difficulties caused by the COVID-19 pandemic. The new policies will be reflected in a resolution to be enacted by the government.

Upon request by the prime minister, the Ministry of Labour, Invalids and Social Affairs (MoLISA) is now collecting ideas and feedback from ministries, agencies, and other stakeholders to complete a draft hallmark resolution of the government on new policies to assist employees, employers, and enterprises that have been hurt by the COVID-19 pandemic. Within the draft resolution, the MoLISA proposed the issuing of another bailout package worth VND27 trillion (US$1.17 billion).

New lifebuoys

If this resolution is released, it will be the 20th document that the government and ministries have issued to support the society and the business community to weather difficulties caused by COVID-19, which has been raging in Vietnam since early last year.

It is expected that the resolution will concentrate on fiscal and monetary tools, with continued favourable conditions offered on tax payment, such as deferral, reduction, and exemption, especially regarding corporate income tax (CIT) which at present stands at 20%.

Furthermore, a number of sectors such as aviation, tourism, hotel, industrial production, and health care are also expected to gain more support from the government. In addition, it is expected that more administrative procedures that increase costs for businesses will be removed.

In addition, upon request from the government, the Ministry of Planning and Investment (MPI) is formulating new policies to support people and enterprises vulnerable to COVID-19. The MPI is currently also building up a governmental resolution on supporting and developing enterprises for the 2021-2025 period.

The fresh movements from the government are urgently necessary as currently there are as many as 9.1 million workers who have been seriously affected in a direct manner by the pandemic in the first three months of this year, in which, more than 500,000 workers lost their jobs and over 2.8 million had to take unpaid leave.

According to in a recent survey conducted over 12,000 businesses in 63 cities and provinces by the Vietnam Chamber of Commerce and Industry on the impact of COVID-19 on enterprises, the pandemic has caused an extreme impact on local enterprises, with 87.2% of respondents saying that COVID-19 has had a negative or very negative impact on their business and production activities.

Moreover, as much as 65% of private firms and 62% of foreign-invested enterprises (FIEs) suffered from a decline last year, with an average reduction of 36% at private enterprises and 34% at FIEs, in comparison with the previous years.

The Asian Development Bank (ADB) recently carried out a study which has suggested that COVID-19 has had a huge impact on the income and poverty levels of Vietnamese households.

For instance, the impact of COVID-19 will reduce household per-capita income by 9.8% on average, and the poorest income group will suffer a 10.2% income fall, while the poverty rate of households in the poorest income quintile will rise by 40%. There will be additional 1.7 million poor people due to the pandemic, and those living in rural, remote areas and ethnic minority people will be more severely affected.

Since the pandemic made its onset in early 2020, the government has responded swiftly to the menace's economic impacts, which was supported by strong economic fundamentals, and has been instrumental in ensuring economy's resilience. The accommodative monetary policy through key interest rate cuts, together with the deployment of credit packages and fiscal support solutions, has provided breathing space to affected businesses.

"However, the credit support has been mainly arranged and provided by the commercial banks. The bulk of the increases of liabilities have been shouldered by the commercial banks, but they still must apply required lending standards, especially when the balance sheets of affected firms are deteriorating. Without risk sharing by the government, banks may have been reluctant to provide more loans to affected firms," Jeffries said.

According to Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam, more than 9,300 enterprises from the Republic of Korea operating in Vietnam and employing over one million Vietnamese people have been seriously hurt by the health crisis, and they are in critical need from the government's further support.

"The COVID-19 pandemic has brought about terrible negative impacts to enterprises and the whole economy. Many businesses have had to either narrow down business and production activities or even halt businesses' performance. Many companies have been suffering from major supply chain disruptions. Without support, many will have to face bankruptcy, I think," Sun said.

According to the General Statistics Office, in the first five months of this year the Vietnamese economy witnessed nearly 60,000 businesses halt operations and wait for disbandment, representing a year-on-year 23% jump. On average, each month saw about 12,000 firms withdraw from the market.

Necessity

Andrew Jeffries, ADB country director for Vietnam, said that the ADB welcomes any support from the government for people and firms who have been vulnerable to the COVID-19 pandemic.

"There has not been sufficient fiscal support from the government. The support was mainly in the form of deferral of taxes and land rental payment, and the size of the support remained modest, as compared with other countries with fiscal support of up to 15-20% of GDP, like in France, the UK or Singapore," Jeffries said. "For some businesses that were heavily affected by COVID-19 with revenue deterioration and no profit, deferral of VAT and CIT has less impact than direct fiscal support measures."

It is expected that at the first session of the 15th National Assembly taking place during July and August 2021, how to further help enterprises out of difficulties caused by the health crisis will be discussed.

At a recent workshop held by the Economic Committee of the National Assembly, Chairman of the committee Vu Hong Thanh required experts to assess mechanisms and policies already enacted and under implemented for enterprises and people affected by COVID-29. The participants agreed that new solutions must be made soon to assist those affected.

Since the second quarter of 2020, the government has also been deploying some drastic measures to support businesses. For instance, the State Bank of Vietnam has been carrying out a package worth VND180 trillion (US$7.82 billion) for enterprises and households, in the form of debt payment deferral and preferential loans. However, no official results from the package's disbursement have been released to date.

Most recently, on April 19, the government signed and issued Decree No.52/2021/ND-CP on the extension of time limits for payment of VAT, CIT, personal income tax and land rental in 2021. The total size of the package was estimated at VND115 trillion (US$5 billion).

The MoLISA has also been asked by the government to review the implementation of a VND62 trillion (US$2.69 billion) package which was launched one year ago to assist 20 million poor and unemployed people. The package embraced a VND16 trillion (US$695 million) sum aimed at providing preferential loans to enterprises at a 0% rate to help them pay salaries for employees.

However, it is reported that so far only VND14 trillion (US$608 million), or 22% of this package, has been disbursed due to many obstructions.

Source: Nhan Dan Online

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