Saving businesses: “Tax exemptions don't work”

Dr. Nguyen Xuan Thanh, lecturer at the Fulbright Economics Teaching Program, believes that restructuring businesses and resolving problems in the banking system are effective solutions to save businesses today.

Many cries for help have been made from the business community. In your objective opinion, are these difficulties at an alarming level?

To date, there is still not enough data to accurately assess the actual level of difficulties facing businesses. The information provided is based only on macroeconomic instability and economic growth in the first quarter, along with the cries for help from many businesses.

The number that speaks most about the current state of business operations is the corporate income tax that should have been available but has not been announced. Thus, an overall picture of the level of difficulties of businesses with specific figures is still unclear. Therefore, there is not enough information to make an objective assessment of the current state of businesses.

Sir, there have been a number of policies to support businesses in recent times, but it seems that the effectiveness of these policies is still unclear?

From 2009 to now, economic growth has always been lower than potential. 2012 is still considered difficult and will continue to be lower than potential. Vietnam's growth potential is estimated at about 8% but the growth rate has only reached about 5-6%. There must be economic difficulties leading to this situation.

This has been reflected in the macroeconomic instability figures and the growth model based on continuously increasing investment with an increasingly high proportion. Every instability requires an adjustment process. In fact, this adjustment process should have started earlier, from the end of 2008 to the beginning of 2009.

Messages about the direction of adjusting economic instability have been sent, so how do you evaluate those messages?

There is really no adjustment. If there is, on the macro side, the macro balances must be re-established. On the business side, restructuring must be carried out. Accordingly, the financial leverage of businesses must be reduced. But by early 2012, the instability problems were still not resolved. This led to a situation where banks lacked liquidity and the bad debt ratio increased.

While domestic enterprises complain a lot, foreign-invested enterprises complain less?

Through discussions with the business community, it can be seen that in the past, in the years 2004-2008, Vietnamese enterprises grew very well, domestic enterprises were very optimistic, and newly arrived foreign investors were also very optimistic.

Meanwhile, FDI enterprises already present in Vietnam are not pessimistic but optimistic with conditions, always seeing difficulties in policies and "calling" for the unstable environment that needs further reform.

Recently, a reversal has occurred. Foreign-invested enterprises have a positive assessment of the business prospects in Vietnam.

This shows that domestic enterprises are currently facing more difficulties than foreign-invested enterprises. The enterprises facing the greatest difficulties are those with the highest financial leverage. The foreign-invested enterprise sector has a lower financial leverage ratio. Thus, the capital structure of foreign-invested enterprises is guaranteed to be balanced.

Many people were surprised by the number of businesses that stopped operating in the first quarter of 2012. But is it normal for businesses to “go and stay” in a market economy, sir?

When an economy is experiencing hot growth, there are always mistakes in the investment strategy of the enterprise. Business is about accepting such risks. However, when the macro situation is unstable, the probability of mistakes increases.

In a good macro environment, mistakes will lead to elimination. It is a positive elimination. Therefore, the negative impact is not much because most of them are businesses that do not use a lot of labor. But in a macro environment that does not operate properly, these businesses are not eliminated. Thanks to certain relationships and "power", these businesses are nurtured.

To continue to maintain, the total assets of these enterprises must “increase”, in the sense that they have to borrow one thing to pay another. At that time, the already limited financial resources do not reach the efficient enterprises because they have to compensate for the inefficient enterprises. It should be noted that administrative measures often lead to wrong addresses when allocating credit.

What do you think when some opinions suggest that there should be some tax solutions to help businesses overcome difficulties?

In fact, it doesn’t work. Corporate income tax exemptions are only a support solution for profitable businesses, while those that are truly miserable and on the brink of bankruptcy do not benefit. However, tax exemptions are the easiest way and seem to be more popular with businesses, so they tend to be chosen more.

So, how should we solve this problem, sir?

If a business is in difficulty because of financial leverage, solving the difficulty is two-sided. On a micro level, the business must be restructured. On a macro level, it is necessary to solve the problems in the banking system to truly solve the difficulty.

According to VnEconomy