Importance of harmonizing local regulations with international norms in Vietnam
Vietnam Trade Facilitation Alliance (VTFA) highly appreciated the efforts of the Government of Vietnam in improving regulatory frameworks and administrative reform, which aims to reduce administrative procedures and facilitate trade and investment.
VTFA which was established with the support of USAID, American Chamber of Commerce (AmCham) and Vietnam Chamber of Commerce & Industry (VCCI) and serves as a national coalition for business and trade stakeholders to provide regular consultations with relevant ministries or agencies regulating international trade, through regularly scheduled formal monthly and quarterly public meetings.
The changes of taxation will adversely impact the entire business plan.
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Regulatory changes, especially those related to tax policies such as increase of tax rates or imposing additional tax, will have significant negative impacts on investment projects. An investor, when making decisions on investment or expansion in a country, they would develop a five – ten year - business plan to estimate the returns on the investment. The changes of taxation will adversely impact the entire business plan, because it will potentially cause higher costs, lower revenue and therefore lower rate of returns or longer time to get returns on investments. The investor would be hesitant to expand their investment in Vietnam if they have been experienced of frequent regulatory changes or changes of tax rate. A good destination for investors is where regulatory environment is stable. The country where regulations are changed from time to time will be a risky environment for investments.
As a case study, the proposed increase of VAT from 10% to 12% and the imposition of excise tax of 10% on certain sweet beverage will hurt investors in the beverage industry and consumers. Since the price of beverage products will be increased about 12%, the volume of sale will likely to be reduced, causing the decrease of the revenue, while the costs for production will be increased due to the increase of sugar price. Consequently, profit of beverage companies will be affected. Big companies may afford to stay in the business, but small and medium businesses will be seriously hurt and may even be eliminated if they do not have strong financial capability.
When the price is increased by 12%, it wont hurt much middle income consumers in big cities like Hanoi and HCMC, who can afford to pay additionally a few more thousand dong for a drink. However, it is not the same for low income consumers, especially those from rural areas, who are struggling to increase a few more thousands dong for their daily income. Thus, the increase of the price by 12% will limit low-income earners from affording beverage products.
Studies and researches indicate that various factors such as unhealthy diets and inactive lifestyle contribute into the causes of health problems, including diabetes and obesity. Taxing sweet beverage only may not help to reduce or prevent the problems, while create concerns on discrimination among food and beverage products. Critics may question why other food and beverage with high sugar are not subject to the tax.
With this being said, the government should take into serious consideration the potential socio-economic impacts of the changes of tax policies and reconsider the proposal for increasing tax or imposing additional tax in order to maintain the confidence of investors in the market and prevent negative signals about the business environment in Vietnam.
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