Vietnam Issues Incentives to Counter Impact of COVID-19 Impact
- The Vietnamese government has issued several incentives in the form of tax breaks, delayed tax payments, and land-use fees for businesses impacted by the COVID-19 outbreak.
- Vietnam’s central bank, the State Bank of Vietnam (SVB), has already cut interest rates from February 2020. Further, the SVB has asked commercial banks in the country to lower interest rates.
- Investors should seek help from qualified local advisors to better understand how the upcoming and current regulations affect their business.
On April 8, 2020, the Vietnamese government issued Decree 41/2020/ND-CP (Decree 41) which provides a variety of incentives to dampen the economic impact of the COVID-19 outbreak.
The incentives include providing tax breaks, delaying tax payments, and delaying land-use fees for businesses, costing the government US$1.16 billion (VND 27 trillion). Vietnam’s central bank, State Bank of Vietnam (SVB) has already cut interest rates from February 2020.
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With the onset of COVID-19, Vietnamese businesses, especially those in the manufacturing sector, are experiencing a slowdown or work stoppages in production, due to the lack of raw materials from China. The country is a major supplier of steel and components for electronics, automobiles, and phone manufacturers in Vietnam.
It is estimated that 17 percent of Vietnam’s economy is exposed to trade with China, making it the highest in the region. 30 percent of the components used for manufacturers in Vietnam, comes from China, while some 32 percent of all tourists coming to Vietnam are from China. Additionally, 20 percent of the country’s agricultural exports go to its northern neighbor.
The government has targeted the economic growth for 2020 to be 6.8 percent but has warned that if disruptions to supply chains continue due to the virus, then growth could slow to 5.96 percent.
Before the COVID-19 outbreak, Vietnam was one of the main beneficiaries of the US-China trade war, with a growing number of Chinese companies moving their operations into the country.
Delaying of tax payments
The Vietnamese government issued Decree 41 on April 8 extending the deadlines for tax payments and land rental fees.
The decree applies to several businesses including agroforestry fishery, food processing, mechanical processing, furniture, construction, transportation, education and training, real estate, labor and employment services, travel agents, tour operators, entertainment activities, movies, supporting industries, small and medium enterprises, and banking among others.
For the aforementioned sectors, the Value-Added Tax (VAT) and Corporate Income Tax (CIT) will be extended by five months.
For individuals and business households, the VAT and Personal Income Tax (PIT) deadlines are extended to December 31, 2020.
Land rent fees have also been delayed for five months for those that lease directly from the government.
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Businesses that want to avail of these benefits must submit a request to the local tax authority along with their returns by July 30, 2020. The submitted request must be in a form as found in the Appendix in Decree 41.
This incentive program would be worth US$974 million (VND 23 trillion) in taxes from businesses in agriculture, textiles, footwear, automotive, aviation, electronics, food processing, and tourism sectors, among many others. Additionally, another US$129 million (VND 3 trillion) in income taxes and value-added taxes is owed during this period.
The Ministry of Finance has said that more than 700,000 enterprises or approximately 98 percent would be given the extension.
Earlier, the General Department of Taxation issued Dispatch No. 897/TCT-QLN on March 3 requesting tax departments of provinces and cities to extend deadlines for paying taxes and exempt penalties for paying late taxes for businesses affected by COVID-19.
To avail of these exemptions, businesses must refer to Clause 3, Article 31 in Circular 156/2013/TT-TBC which lists cases in which tax deadlines can be extended as well as the procedures and the documents necessary.
Recently the Prime Minister also issued Directive 11 on measures to help businesses affected by the pandemic.
Highlights of Directive 11
Apart from the aforementioned incentives, we highlight other incentives from Directive 11:
- Postponement of the collection of social insurance premiums;
- Local authorities to reduce charges and fees of businesses affected by COVID-19; no increase in input prices for goods required in manufacturing in the first and second quarters of 2020;
- Ministry of Industry and Trade (MOIT) to oversee and ensure the supply of raw material for manufacturing businesses;
- Facilitate customs clearances including difficulties faced by importers and exporters; and
- Support labor training and support employees that have lost jobs due to the epidemic. In addition, find solutions for foreign employees working in Vietnam.
Further incentives by local governments and ministries are likely to be introduced in compliance of Directive 11.
Apart from this, we look at interest cut rates that have already been issued.
Interest rate cuts
SVB has cut interest rates by 0.5-1 percentage points and to scrap transaction fees. The central bank also ordered commercial banks in the country to follow suit and they offered US$12.4 billion (VND 293 trillion) in preferential credit to affected businesses.
Vietnamese bank HDBank has cut transaction fees for domestic payments by 50 percent and has offered low-interest loans. The bank has also cut fees for issuing letters of guarantee for businesses that supply medical equipment and pharmaceutical products.
Additionally, another local bank, ABBank provided a loan support package worth US$172 million (VND 4 trillion) for businesses impacted by the virus outbreak. While Kienlongbank has cut its interest rates by three percentage points to assist farmers, in particular those growing jackfruits, watermelons, mangos, rambutan, and dragon fruits between February to April 2020.
Investors should seek help from qualified local advisors to better understand how the upcoming and current regulations affect their business.
Note: This article was first published on March 23, 2020, and has been updated to include the latest developments.