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High business costs: How to improve effectiveness

What are impacts of business costs on competitiveness of Vietnamese enterprises in the context of international economic integration? That was the theme of the conference organized by the Central Institute for Economic Management (CIEM) in cooperation with the Vietnam Auditing Co. (VACO) on March 11.

According to the CIEM, general speaking, there are three problems in terms of business costs among Vietnamese enterprises. First, prices in areas throughout Vietnam are too much different, leading to unbalance of investment between areas. Second, illegal fees and red-tape remain to be big problems in many localities. And third, business costs in Vietnam stay too high in compared with those in other countries.

Survey in localities with great FDI capital shows that business costs of many enterprises, especially ones with foreign investment tend to rise. Many complain that corporate income tax rate on them has been increased to 40% for many legal costs are not deducted before calculation of the tax. In addition to the three main business costs namely expense on materials, expense on equipments, and amortization cost, there are 16 – 17 costs like office renting fee, business registration fee, expense on labor, expense on transport, water and electricity fee, insurance fee, money exchange fee, etc. Though prices of electricity for business in Vietnam are not high but service quality is a problem, increasing electricity fee by 10% - 15%. Office renting fees in Vietnam is not so high in compared with those in other countries but there are different possibilities of access for different sectors. Vietnam is well-known for low labor wages but Vietnamese workers are not very skillful. Though Vietnam has great geographical advantages, it is among countries with highest transport fees in the region. Moreover, administrative procedures in Vietnam are very time-consuming and red-tape remains to be a big problem.

Additionally, legal environment is unstable. Policies on tax, especially import duty change all the time, causing difficulties against enterprises for domestic production depends much on imported materials and machinery.

To solve the problems, administrative reforms should be accelerated and there needs to be a long-term strategic legal framework.

Vietnam Economic Review - (16/03/2005)

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