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No Joy In Tax Decisions  -  It is reported that most National Assembly (NA) deputies did not agree with the Government's proposal to impose a Special Consumption Tax (SCT) on motorbikes, arguing that motorbikes are essential means of transport and not a luxury product.

The rationale used is that traffic accidents are not caused by motorbikes only. Moreover, the SCT on motorbikes may backlash, increasing traffic accidents as it may encourage the purchase of low-cost, low-quality bikes [read that bikes made in China and not Vietnam]. In this scenario, the motorbike industry would be affected as it may turn to manufacturing low-quality bikes.  

The arguments included NA Chairman Nguyen Van An who reportedly said, "I cannot understand why motorbikes are subject to SCT. Food and means of transport are essential necessities, not luxury items." Nguyen Duc Kien, head of the NA Economic and Budgetary Committee, proposed the NA exclude the motorbike from the list of commodities subject to the SCT. A total of 342 out of 396 deputies present agreed to the proposal.

Deputies also proposed reduction of the 40% SCT on draught beer to 30%. Meanwhile, they asked higher SCT on discotheque, massage and karaoke (from 20% to 30%), playing cards (from 30% to 40%), votive paper (from 60% to 70%) and liquor (to 15%, 20%, 30% and 75%).

The SCT on four-seat cars will be lowered to 80% from 100%, for 6-15 seaters to 50% from 60%, and 16-24 seaters to 25% from 30%. Automakers still enjoy a preferential consumption tax (PCT) of 5%, but the PCT rate will rise to 40% next year and 50% in 2005. [Just how this will aid the always faltering auto industry does not seem to be as important to the deputies.]

Corporate Income Tax – It is reported that 346 out of 396 deputies agreed to apply a single rate of 28% to both local and foreign-invested enterprises (FIEs). This means that FIEs will have to pay 3% more, while local enterprises will pay 4% less compared with the current rates. [This is curious reasoning as Vietnam’s growth depends on export sales while the pool of domestic buyers itself does not provide enough income to the State to support higher returns based on increased volume.  This places a further disincentive on FIEs that are struggling still to make any real profit.] 

According to Finance Minister Nguyen Sinh Hung, the rate of 28% was reasonable as most regional countries applied the rate of at least 30% (China: 33%, the Philippines: 32% and Thailand: 30%). [Not mentioned is that all these nations have a strong, domestic base to support higher sales volume and thus increased revenues encouraged by lower tax costs]. However, preferential rates of 10%, 15% and 20% are still applicable to local and foreign-invested projects and businesses operating in sectors and areas encouraged by the Government.  

Tax on Profit Repatriation - Foreign investors will not be required to pay the tax on profit repatriation. [As there are few if any profits made by foreign invested enterprises, this is clearly not a gain for the foreign companies nor will it result in any loss to the State.] 

Land Tax - A notable point in the amended law is that businesses are required to pay taxes for revenue gained from the transfer of land-use rights and land lease.

Marketing/Promotion Spending Limits - Deputies also agreed to raise the cap on spending for marketing and promotion activities to 10% from 7 per cent [Not a great help for the world’s leading marketing companies that often have their budgets set at 40% or more for these line items.] 

 Value Added Tax (VAT) – The deputies reportedly agreed to drop the VAT rates to three (0%, 5% and 10%), applicable from next year.

The NA also approved the Law on the State Bank of Vietnam, allowing the trade of both short- and long-term valuable papers on the money market instead of only the short-term papers as before.

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HCMC Tunnel - Four Japanese bidders have been short listed from the total 22 foreign companies participating in the bid to build a tunnel under the Saigon River. Obayashi Corp. offered a bid price of US$142.5 million, Taisei Corp. US$144.2 million, Kumagai-Kajima consortium US$170 million and Toa Corp. US$175 million.  

The Vietnamese Government and Japan Bank for International Cooperation (JBIC) will announce the winner in the next two or three weeks. The 1,490-meter Thu Thiem tunnel linking HCM City downtown with Thu Thiem Peninsula is estimated to cost US$130 million. It is part of the US$657-million East-West Highway project with 85% funded by JBIC.

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More Russian Oil Challenges - The Russian State oil company Zarubezhneft may withdraw from a 50/50 JV with PetroVietnam to exploit the Dai Hung (Big Bear) oil field this week. According to an official from PetroVietnam, Zarubezhneft officials will arrive in Vietnam this week and may announce the withdrawal as they do not want to face risks when investing more in the oil field from which only 250,000-350,000 tons of crude oil is pumped up a year. Zarubezhneft joined PetroVietnam to exploit Dai Hung after Petronas Carigali of Malaysia left in 1999. The two partners last year agreed to invest US$200 million to reassess the reserve, but results were not as expected. [See related dispatch, below.]

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Telecom Sector Opens a Bit More - The Government is expected to issue a decree later this year allowing U.S. investors to set up joint ventures in the telecom sector rather than limiting their investment to business cooperation contracts only.

Mai Liem Truc, Deputy Minister of Post and Telecommunications, said the Government would open the service sector to American investors, in line with the Vietnam-U.S. Bilateral Trade Agreement (BTA).  

"Under current regulations, foreign investors in the telecom sector are allowed to proceed under the business cooperation contract (BCC) only, which bans them from direct operations," Truc said. The BCC allows foreign investors to develop technical infrastructure for telecom, leaving trading to the local partner and gaining profit according to the agreed ratio.  

By now allowing direct American investment in telecom joint ventures (JV), the investors will gain the rights to engage in direct business. [And such investors will also gain challenges that have made a Vietnamese JV among the least desirable forms of investment in Vietnam.] 

According to Truc, American investors wishing to engage directly in the telecom sector should negotiate with a Vietnamese partners to set up joint ventures. According to the BTA, from December 10 this year, American companies will be allowed to set up JVs with a maximum stake of 50% to provide value-added services like email, voice mail, data access and exchange, data processing and code conversion. One year later, they may provide Internet services and from Dec. 10, 2005, they will be allowed to provide basic telecom services like mobile phone, data transmission, fax and leased lines. However, the fixed telephone service will only be opened to American investors as from Dec. 10, 2007.

Truc noted that the Government would also open the service sector to investors from Europe and other countries, but the schedule would depend on the trade agreements Vietnam will sign with such countries.

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Internet telephony to be allowed soon - The Ministry of Post and Telecommunications has allowed Internet service providers (ISPs) and telecom companies to provide Internet telephony from July 1 under the form of subscription or cards.

Deputy Minister of Post and Telecommunications Le Nam Thang said telecom companies and ISPs would get permission to provide Internet telephony service where customers can use a computer connected to the Internet to make phone calls to another computer, a fixed phone, or a mobile phone number, both in Vietnam and abroad.  

"ISPs will be allowed to determine the fees but they must not be less than the floor price of VND1,500 per minute, equivalent to 10 U.S. cents," he said. This fee is 7.5 times lower than that of a long-distance phone call using Voice-over-the-Internet Protocol.

At least six ISPs have plans to operate Internet telephony, including Vietnam Data Communications, Saigon Postel, Military Electronics Telecommunications (Vietel), One Connection Inc., Hanoi Telecom and Electricity Telecom. The six ISPs are also ready to provide long-distance telephone calls via the Internet but they have not received any reply from the ministry over permission for the service.

The number of telephone subscribers in Vietnam has reached six million. According to Vietnam Post and Telecommunications Corporation, Vietnam's phone ratio is still low compared with other countries, but in terms of annual growth, Vietnam ranks second in the world after China.
 

There are over two million mobile phone users. Last year, 741,000 mobile phones were sold in Vietnam. The figure this year is estimated at one million. However, 75% of the mobile phones were illegally imported.

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BTA turns U.S. into No. 1 export market - One year into its effect, the Vietnam-U.S. Bilateral Trade Agreement (BTA) has helped turn America into Vietnam's number-one export market, according to a report jointly prepared by the Central Institute of Economic Management (CIEM) and Star Vietnam, a project to promote Vietnam's trade.

The director of one USA company said massive tariff cuts sent last year's Vietnamese exports to the U.S. soaring to US$2.3 billion, a 128% growth over 2001. This figure was quite impressive compared with the mere 10% growth Vietnam could post with the rest of the world.  It exceeded Vietnam’s own published predictions of growth of US$ 800 million.

Of the manufactured goods exported stateside, textile and garments, and wood products grew the fastest with rates of 1,769% and 499%, respectively. Footwear posted a growth rate of 70 per cent.

Exports to the U.S. made up 90% of Vietnam's export of goods. Observers said the total stateside export revenue could rise to US$3 billion by 2005 and US$5 billion by 2010. These sums could be even higher if Vietnam was able to maintain the current rate.

At the same time, U.S. export to Vietnam jumped 26%, an interesting performance given the downward trend of global trade.

U.S. companies have indicated an optimistic attitude towards the BTA. A poll [the report has no indication of whose poll or when it was taken] shows that 83% of U.S. interviewees said a successful BTA implementation would spur their business in Vietnam. Many said the implementation had improved Vietnam's business environment. However, U.S. direct investment accounts for only 8% of the total foreign investment here.

With 167 operational projects capitalized at US$1.16 billion, the U.S. ranks 11th among foreign investors in Vietnam, jumping two slots from the 13th place in 2002. In the first five months of this year, 14 new U.S. projects were licensed with investment capital of US$44.24 million. Also in the same period, US$27 million was realized, raising the total capital implemented by U.S. investors in Vietnam to US$565 million. [See Economic Indicators for a history of foreign direct investment projects by the US and 19 other nations.

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Massive AFTA tariff cuts effective in July 2003 - Vietnam is scheduled to bring down tariffs for highly protected goods categories to under 20% from early next month to comply with the ASEAN Free Trade Area (AFTA), said Deputy Finance Minister Le Thi Bang Tam.

A 20% tariff rate will be imposed on such imports as electronics, paper, construction glass, processed coffee, edible oil and cosmetics, which are subject to a current rate of 50%. The 12 highly protected goods categories would undergo further cuts to 15% by 2005 and 5% in the following years.

However, a 15% rate will remain unchanged until the end of 2005 for clinker, cement, newsprint, printing paper, sanitary diapers and napkins, construction glass, electronics, refrigeration products, and cars of more than five tons.

This year is the deadline for Vietnam to transfer all the 775 goods items in the Temporary Exclusion List (TEL) to the list of goods subject to tariff cuts that will slash rates to 20% or lower. Vietnam will have to lift all the quantitative limitations to imports this year, inclusive of quota imposition.

Tam said the Government would issue a decree for the list of goods under the AFTA Common Effective Preferential Tariff (CEPT) in 2003-2006 relying on ASEAN Harmonized Tariff Nomenclature (AHTN).

The Government will also promulgate an import tax cut scheme for products under the CEPT roadmap, including a detailed timetable for tariff reduction of 10,150 items each year during 2003-2006.

AFTA will bring down tariff rates of all the 10,150 goods items to 20% or lower. However, the 0%-5% category will be effective as of 2006.

Some goods whose import tariffs will be cut  

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Dung Quat in Trouble … again -   PetroVietnam has threatened that it would find another contract for Vietnam's first oil refinery in Dung Quat if disagreements on pricing with the current consortium headed by France's Technip Coflexip could not be solved. 

Reminiscent of Total’s request nearly 8 years ago before it pulled out of the original project, the current consortium asked to raise the total price to more than US$720 million, the level it won for the tender for the cracking and processing facilities alone in at the proposed refinery.  

A PetroVietnam official briefly stated that the two parties differ with each other over prices, declining further comments. PetroVietnam opines that it does not need to accept unreasonable conditions, adding that it can seek another partner instead. 

PetroVietnam has agreed to technical design changes which allow for the French company to submit another quotation. [It thus appears that this dispatch was released by the State controlled media in an effort to raise the threat level against their newest French partner.]  

The Vietnamese side also wants the foreign contractor to do other jobs rather than designing, building and testing the refinery. Among the additional jobs are checking the pipelines, connections and storage tanks that are to be installed by different contractors. PetroVietnam says it expects the current round of talks to end this month. [The report leaves open to wonder if the State is willing to pay for these added services or seeks them as follow-on concessions for having the bid accepted.] 

The refinery, projected to process up to 6.5 million tons of crude oil a year and located in the central province of Quang Ngai, is part of a complex worth US$1.3 billion.

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Pepsi Becomes Fully Foreign Invested - Pepsi-IBC Vietnam will turn into a wholly foreign-owned entity following its buyout of the 3% stake currently held by the last local partner, Vietnam Investment Review (VIR) quoted a corporate source as saying. 

Netherlands-based PepsiCo Global Investment II BV said it had received the go-ahead from the Ministry of Planning and Investment to purchase the local stake of Speco for US$2.4 million. After the buyout is finished, Pepsi-IBC will become PepsiCo Vietnam.  

IBC is a joint venture set up in 1991 by Speco and Macondray of Hong Kong.  

At the time the U.S. trade sanction was lifted in 1994, Pepsi formed and held a 30% stake in the US$22 million joint venture. 

Four years later, in 1998, Pepsi purchased all but a 3% portion still owned by IBC.

Pepsi and rival Coca-Cola account for up to 88% of the market of carbonated drinks in Vietnam. The remaining is shared by local producers with Tribeco, the largest player, holding 6 per cent.

Early predictions by both Pepsi and Coca-Cola for the local demand in carbonated soft drinks rising to 400 million liters by 2000 never came to pass. The actual figure was 280 million liters.

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Cargill Starts Construction New Plant - The construction of the U.S. wholly-owned Cargill Vietnam's animal feed factory was reportedly started in June, 2003 in Pho Noi A Industrial Park, Van Lam District, Hung Yen Province. The factory, to be the largest animal feed mill in northern Vietnam, has an investment capital of US$12.5 million and a first-phase capacity of 5,000 tons per month. This is expected to rise to 9,000 tons in the second phase. The factory is scheduled to be operational next year.

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The Russian Perspective -  Russia and Vietnam have a long and curious relationship that was recently explored by Pravda, the once wholly State controlled media organ of the Soviet Union.  Still often reporting the government point of view, recent articles are re-published by VVG to help other foreign investors who are considering Vietnam to know the official Russian point of view.

In the first two articles regarding Cam Ranh Bay, Pravda reports:

Written in March, matters on financing the Dung Quat refinery did not turn out as projected.  It is left to be seen how other matters of “common” interest progress.  Read the full articles.