Business in brief 12/11

Ministry asked to tax stainless steel imports

Vietnam Steel Association (VSA) is seeking approval from the Ministry of Finance to raise the import duty on cold rolled stainless steel from 0 percent to 10 percent.

Since Vietnam’s steel industry can now meet the domestic demand for cold rolled stainless steel products with a supply of some 315,000 tons a year, the tax increase can help protect domestic production.

In 2010, approximately 140,000 tons of stainless steel from China and Taiwan were imported into Vietnam and with no tax, were sold at a much lower price than domestically manufactured steel, harming local production.

Currently, only Vietnam does not tax this product, while some countries like the Philippines, Indonesia and Thailand are applying import tariff rates from 3 percent - 7.5 percent for cold rolled stainless steel products.

But for stainless steel scrap, VSA recommended the ministry to reduce the import tariff from current 25 percent to 0 percent.

Negative growth projection for 2011

The Vietnamese steel industry is expected to suffer a 7.69 percent negative growth in 2011 on the decline of both investment and sales volume, VSA said at a recent conference.

Steel businesses have been running losses recently as the steel prices were around VND15 million a ton, lower than production costs of VND15.5 million a ton, said VSA at the "Solving difficulties for Steel Industry" conference held the finance ministry.

Many factories were forced to stop production and even to close their business such as Van Loi Co in Hai Phong City.

The steel association suggested the government apply barrier against imported steel to protect the domestic market and help the steel businesses access to banks’ credit and borrow foreign currencies.

Vietnam’s domestic steel consumption may rise 4 percent in 2012, much lower than previous years due to high lending interest rates and a challenging property market, Thoi Bao Kinh Te Vietnam newspaper reported, citing a VSA report.

VSA said that in 2012, Vietnam will witness many local steel manufacturers going bankrupt. Steel enterprises which consume more energy, more raw materials and produce low quality products will be the first to shut down.

Koreans eye quality investment in Vietnam: official

Korean investments into Vietnam began in 2001 and have since continued to grow, a Vietnamese official from the Vietnam – Korea Friendship Society told Tuoi Tre.

Duong Chinh Thuc, deputy chairman of the society and a former ambassador to Korea, said the East Asian country had taken only 10 years to become the largest foreign investor in Vietnam with over US$23 billion in 3,000 projects.

Bilateral trade was targeted to reach $20 billion by 2015.

Many Korean businesses had told him that they wanted to focus on project quality and technology transfer rather than just numbers.

For instance, Samsung had a mobile-phone plant in the northern province of Bac Ninh and wanted to make more high-technology products in Vietnam.

“This is a chance for Vietnam to take part in the global value chain of this giant company.”

One crucial factor that encouraged Korean businesses to invest in Vietnam was the close diplomatic ties between the two countries.

Similar cultural values also helped.

“A friend of mine, a former Korean ambassador in Vietnam, has chosen to stay in Vietnam after his term.

“The Korean business community is one of the largest foreign communities in Vietnam.”
But to cope with the investment flow from Korea into high-technology, Vietnam had many tasks to accomplish.

“Vietnam used to have the advantage of a low-cost workforce, but this will now become our challenge.

“We need to have a skilled and qualified workforce to attract investment in the technology sector, and this is when the low-cost workforce becomes a challenge.”

The country also had to improve its infrastructure and support industries to meet the needs of the Korean partners.

“Most of all, the tortuous paperwork and red tape still bother Korean businesses.”
A problem that needed to be resolved was the large trade deficit with Korea, which had topped $6.7 billion last year.

Though Korean businesses said the gap had been caused mostly by machinery and raw material imports by Korean investors, the two countries still had to find for an appropriate solution for this.

“We will also seek to boost consumption of Vietnamese seafood and agricultural products in Korea.”

150 homebuyers net discounted products

Saigon Mekong Co. on Monday officially launched products of An Tien condo project onto the market with 150 homebuyers registering in the first day.

The condo project is located at Nguyen Huu Tho Street, Phuoc Kieng Commune in HCMC’s Nha Be District.

According to Saigon-Mekong Co., the average price is VND14.4 million per square meter and a total of VND1.3 billion for a 91 square meter apartment. The price has been cut by VND3.5 million a square meter, seeing the 150 buyers pick up a bargain.

Besides discount prices, the company is also enticing buyers by allowing them to take over houses with a 30% payment of the total value of each apartment, while the remaining 70% will be lent by banks over a 15 year period.

Furthermore, the investor will support its customers with lending rates fixed at 8% per annum in the first year for condos worth over VND15 million per square meter. The same annual rate is also applied in the first two years for apartments worth more than VND16 million psm.

Nonetheless, the strong registration on Monday may be a temporary reaction of the market and the real problem facing the company is how long it will take them to sell out all 500 products.

Saigon-Mekong Co. is a secondary investor in An Tien condo project developed by Hoang Anh Gia Lai Land and it plans to hand over houses to buyers in the middle of next year.

Meanwhile, PetroVietnam Power Land Joint Stock Co. (PVL), developer of PetroVietnam Landmark located at Cat Lai T-junction area in An Phu Ward in the city’s District 2, will hold a lucky draw as it sells its condos today in Hanoi.

PVL sent a shockwave through the apartment market in HCMC following its announcement to decrease the price of 85 condos of PetroVietnam Landmark to VND15.5 million a square meter, VND5.8 million lower than the earlier buying price and VND8.3 million lower than the original offer.

It is believed that PVL has done its sums and come up with this new deal as it seems such a good deal for consumers to buy condos at discount prices.
 
Saigon Co.op to open nine stores in next few months

Saigon Co.op, owner of Co.opMart supermarket chain and Co.op Food stores, planned to open nine supermarkets and food stores before the Lunar New Year holiday in order to meet the higher consumption demand on this occasion.

Five new supermarkets will be set up in HCMC’s Can Gio District, Bao Loc Town in Lam Dong Province, Bac Lieu, Vinh Phuc and Tra Vinh provinces, taking the total number of Co.opMart supermarkets to 57 nationwide.

In addition, Saigon Co.op will put into service four new Co.op Food stores before Tet (Lunar New Year) holiday at the processing zones, the industrial parks and the outskirts of HCMC.

Nguyen Thanh Nhan, deputy general director of Saigon Co.op, said the new supermarkets and stores are aimed to supply the products to consumers all over the country.

As for rural and remote markets as well as export processing and industrial zones, Co.opMart will operate over 100 mobile sales during the Lunar New Year 2012. Products to be sold at these mobile sales are essential goods produced locally with good prices and guaranteed quality.

Co.opMart will also launch promotion programs with discounts and gifts.

To serve consumers’ demand in the high season of shopping during the year’s end and the Lunar New Year holiday, Co.opMart supermarket chain has increased the product volume by four times. Saigon Co.op expected the purchasing power to rise by 3-4 times compared to normal days.
 
Retailers demand compensation from Shiseido

Fifteen local retail shops have demanded Shiseido Cosmetic Vietnam to pay them VND97 billion in compensations, saying the company’s unfair treatment towards agents in promotion programs have resulted in big losses for them.

Lawyer Nguyen Thanh Tung, legal representative of these retail shops, said if Shiseido declined the compensation of VND97 billion, a lawsuit would be lodged at the HCMC court. Then the compensation might reach US$20 million, or VND420 billion.

“With their evidence on hand, owners of these retail shops have a 90% probability of winning,” said Tung.

The retailers complained since the management rights were transferred to Shiseido Vietnam, their profits have been falling while labor costs and land rents keep rising.

Speaking to the Daily last Sunday, Nguyen Thanh Duc, legal consultant of Shiseido Vietnam, said the cosmetics firm does not reject the demands but whether to satisfy them or not depends on the legal evidence of both sides.

In 1997, Shiseido Cosmetic Japan had the HCMC-based Thuy Loc Company work as the firm’s distributor in Vietnam. However, in 2008 when the cosmetics maker started constructing its factory in Vietnam, Thuy Loc gradually transferred the rights to manage the retail shops to Shiseido.

Shiseido Vietnam is currently managing 28 retailers nationwide. Since acquiring the management rights from Thuy Loc, the company has launched many promotion programs but only applicable to eleven retail shops completely owned by Shiseido Vietnam, excluding the 15 aforementioned retailers.

Due to not benefiting from the promotion programs, the revenue of these retail shops has dropped from VND100 million per month in 2008 on average to below VND20 million in 2011. Therefore, on October 7, the 15 retailers had a working session with Shiseido Vietnam to claim their rights but failed.

Shiseido is a world famous brand in fashion, beauty care and cosmetics. In 2008, Shiseido Japan invested US$40 million in a factory covering 100,000 square meters in Bien Hoa City, Dong Nai Province to supply products for the whole Asian market.
 
Vinacomin asked to reassess alumina project’s efficiency

The Ministry of Industry and Trade has requested Vietnam Coal and Mineral Industry Group, or Vinacomin, to reassess the economic efficiency of Tan Rai alumina project in Lam Dong Province.

The reassessment is to clarify the transparency of the investments in upgrading the roads to transport alumina from the production site to the seaport for export, as well as the economic efficiency when the project is to start production in the coming time.

The request was given by the Heavy Industry Department under the ministry at a meeting on Monday, following Vinacomin’s proposal for incentives, including a pre-tax accounting for the investments in the upgrade and an export tax cut from 20% to 0-5%.

The Tan Rai alumina project has the total investment capital of US$700 million.

Alumina will be transported from Tan Rai plant along Provincial Road 725 to Bao Loc Town in Lam Dong, and then via National Highway 20 to Dau Giay Junction. From there, alumina transport trucks will travel through Provincial Road 769 to Go Dau Port in Dong Nai Province. The entire route is 210 kilometers in length.

The estimated capital to upgrade the provincial roads 725 and 769 is some VND640 billion.

Nguyen Van Bien, deputy general director of Vinacomin, explained the upgrade expenditure was not included in the project’s primary budget. As requested by the Ministry of Transport, Vinacomin will finance the upgrade of these roads, but the group demanded a pre-tax accounting to reduce its burden.

Tan Rai project, as the first alumina production project in Vietnam, should enjoy lower export tax rate. The rate could be adjusted later when the alumina industry has well developed, Bien said.

This proposal of Vinacomin would be considered after the group submitted its report on the efficiency of Tan Rai project, said Nguyen Khac Tho, deputy head of the Heavy Industry Department.

Nguyen Thanh Bien, deputy minister of industry and trade, shared this view, saying his ministry and the Ministry of Finance would gather opinions of related agencies on Vinacomin’s proposal to reduce tax rate for submission to the Government for approval.

However, Bien said there is a huge gap between the recommended tax rate of 0-5% and the currently imposed 20%. Therefore, the project efficiency must be considered thoroughly before coming to a decision.

Speaking to the Daily on Monday, Nguyen Manh Quan, head of the Heavy Industry Department, said the Ministry of Industry and Trade has recently sent a document to the Ministry of Finance suggesting the export tax rate of 0-5% applicable to Tan Rai project. The finance ministry has yet to reply.

Quan said the imposed tax rate of 20% on Tan Rai project is very high and should be pulled down to around 0-5%.

Earlier, the trade ministry also had similar request to the finance ministry. However, the latter said the former’s request contradicts prevalent regulations.

Alumina belongs to the group of pure aluminum ore, which is currently imposed an export tax rate of 15-40% by the National Assembly Standing Committee.

Village hurt by evidence of banned chemical

Two households in Hanoi’s Vong village, well known for its “cốm” (grilled rice snack), have been found using a banned chemical in their products, hurting the village’s reputation.

Last month, the municipal Department of Health found the presence of malachite green in the com produced by 2 facilities owned by Nguyen Van Luyen and Nguyen Van Sang in the village in Dich Vong Hau Ward, Cau Giay District.

On October 28, the National Food Safety and Hygiene Institute confirmed that the two facilities’ products contained malachite green with the respective ratio of 5.9 mg and 1.5 mg per kilogram.

The allowable limit is only 2mcg per kg and malachite green is banned from use in aquaculture in Vietnam since 2005, the agency said.

The two facilities have been suspended, and customers have been turning their backs on the traditional snack.

80-year-old Le Thi Can, who owns a well-known com making facility in the village, said the violators had tarnished the reputation of her products, which have managed to go beyond Hanoi to neighboring provinces such as Hai Duong, Hung Yen and Bac Ninh.

“It really hurts me inside,” she said. ““Com is both a tradition and a cultural value but its prestige is now damaged by only a couple of irresponsible facilities.”

With 60 years of making com, Can assured that no banned coloring was used in her snack.

Many households in the village now plan to quit the profession.

Le The Ton, deputy chairman of the Farmer Association of Dich Vong Hau Ward, said most of the com producers would be too old to find an alternative job.

“Just a couple of individuals have indeed killed a craft village,” he said.

He said the incident was partly caused by the lack of knowledge of certain facilities.

He said the Dich Vong Hau Ward’s People’s Committee had joined hands with the municipal Food Hygiene and Safety Agency to provide instruction for the com makers in the village.

“[The com makers] have promised to ensure food safety and hygiene in their products.”

He said the ward People’s Committee would regularly organize instruction classes for these producers.

“We’ll also conduct monthly inspection and will cancel licenses of the violators to protect the reputation of the traditional village,” he said.

APEC 2011 deepens VN’s ties with other members

President Truong Tan Sang will attend the 19 th Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Hawaii , the US from Nov. 10-13 at the invitation of US President Barack Obama.

Vietnam ’s participation in this APEC meeting reflects the 11 th Party Congress foreign policy of proactively promoting intensive and comprehensive international integration and continuing to play an important role in Asia-Pacific regional cooperation frameworks, including APEC.

This will also be a chance for Vietnam to take advantage of suitable APEC programmes in an effort to stabilise the macro-economy, serve socio-economic development goals and renew the growth model.

The APEC meeting will offer an opportunity for Vietnam to boost political, trade and investment relations with regional partners, while helping to deepen ties between Vietnam and other APEC members through the exchange of information on the socio-economic situation as well as on the guidelines and policies of Vietnam .

With the theme, “Strengthening regional economic connectivity and expanding trade”, the 19 th APEC Leaders’ Meeting will focus on three areas of priority, namely regional economic connectivity and trade expansion; green growth and advancing regulatory cooperation and convergence.

Cooperation on the technical economy and human security will be discussed at ministerial meetings and senior officials meetings (SOMs).

Economic experts said that in the context of global economic difficulties, the strengthening of trade and cooperation in solving economic issues to overcome crisis will open up new opportunities for all APEC members to boost their economic development.

Established in 1989 and with 18 summits held, APEC is now the largest economic trade cooperation group in the Asia-Pacific region. It includes 21 member economies and accounts for 40 percent of the global population, 55 percent of GDP and 44 percent of world trade.

APEC is actively speeding up efforts to strengthen the efficiency of cooperation and improve its role in the world economic restructuring process, especially in the face of the emergence of other regional mechanisms such as the East Asia Summit (EAS), the Trans-Pacific Partnership (TPP) Agreement and G20.

Since it joined APEC in November 1998, Vietnam has been an active and responsible member of the organisation. The success of APEC Year 2006 hosted by Vietnam has left good impressions on APEC members.

Vietnam has made contributions to building APEC cooperation contents, strategies and action plans in all fields and seriously implemented the organisation’s commitments. The country has actively proposed about 70 initiatives on trade, investment, technical cooperation, healthcare, and responses to a state of emergency and counter-terrorism.

Intra-APEC cooperative activities have helped improve Vietnam ’s position in the region and the international arena, as well as boost bilateral relations with important partners in the Asia-Pacific region.

Through joining APEC, Vietnam has gained better access to capital sources, modern technology and management experience through investment and trade activities with major economies like the US, Japan, China and Canada.

Personal income tax considered too high

The current personal income tax is too high while the exemption is inconsiderable, said an evaluation conducted by the Vietnam Tax Consultants’ Association (VTCA).

At the meeting to collect feedback on the amendment of the personal income tax law held by the Ministry of Finance yesterday, VTCA said tax collection had been consistently rising in the past four years.

It said tax collection had more than doubled from VND7 trillion (US$336 million) in 2007 to VND14.3 two years later, despite a 6-month exemption granted during that year’s economic turbulence.

Last year the figure soared to nearly VND25 trillion.

VTCA said the government could only collect taxes from individuals’ wages and failed to control incomes from other sources. This is unfair, it said.

Do Thi Thin, VTCA’s deputy chairwoman, said tax was supposed to be calculated on income that has excluded daily expenses.

Because businesses could have their expenses excluded from their taxable corporate income, personal income tax should be treated similarly, Thin said.

She said other countries such as Thailand, Korea and Japan had exempted 40 percent of personal income supposed to be spent on public health, education and other necessities before calculating the final taxable income.

Meanwhile in Vietnam, the current deduction of VND4 million a month for taxpayers was too low. Thin said the reduction should be increased to VND5 million.

VTCA also said the current tax rates of Vietnam were much higher than in other countries, and many foreign people working in Vietnam had thus demanded their Vietnamese companies to pay for their taxes.

Dr. Vuong Thi Thu Hien, head of the Tax Faculty of the Institute of Finance, also said the maximum personal income tax rate of 35 percent was too high compared with the 25 percent rate of the corporate income tax.

VTCA also said the current deduction for taxpayers based on their family circumstances should be more flexible.

For instance, if a taxpayer adopted a person with no income, that person would be considered a dependant, who would help the taxpayer enjoy a deduction of VND1.6 million a month.

But in case the monthly income of either the parents of a taxpayer exceeded the mere VND500,000 ($24), they would no longer be considered a dependant.

Dr. Ly Phuong Duyen from the Institute of Finance said the deduction rate should be adjusted after three years to better support taxpayers.

Ambitious local distribution chain in final throes

Five years after its grand debut in 2006, aiming to become a powerful competitor to foreign distribution chains, the G7 Mart convenience store chain has eventually accepted defeat.

According to Sai Gon Tiep Thi newspaper, in 2006, Dang Le Nguyen Vu, CEO of G7 Commercial Services Co., inaugurated his chain of 500 G7 Mart convenience stores countrywide, beginning an ambitious and overweening journey to achieve his strategic target.

However, many economic experts at that time warned G7 Mart of tough challenges ahead since the novice company would have to directly compete with seasoned retailers including Co.op Mart, Maximark and Metro.

Vu, however, was confident that his comprehensive preparation for the chain would help him overcome all obstacles.

He said at that time there were around 160,000 retail stores around the country, 10,000 of which accounted for 70 percent of the manufacturers’ sales.

G7 aimed to compete directly with these 10,000 rivals, which were in fact indispensable parts of the manufacturers’ distribution chains. By declaring war against these retail stores, G7 Mart was in fact declaring war against the suppliers of goods and products to these stores.

As a result, the convenience stores failed to secure good deals with manufacturers who will supply them with products of good quality at competitive prices.

As it happened, G7 Mart stores constantly had to buy goods at high prices and there were times when they could not even manage to fill their stocks.

A former supervisor at a G7 Mart store said 80 percent of the 1,000 items on sale at the stores in G7 Mart chain had higher prices than those of other retailers.

“Not only did G7 Mart fail to negotiate for a reasonable price deal, it was also treated like a family’s black sheep by the manufacturers,” he said.

“The manufacturers seldom provided the best-selling goods to stores in G7 Mart chain, lowering consumers’ trust in the stores.”

Not long after its inauguration, G7 Mart has to gradually shut down its stores in the northern, central and south-west markets.

Even in the only remaining market in Ho Chi Minh City, G7 Mart also had to cut the number of its stores citywide by half and kept only two salesmen for its staff.

According to economics expert Le Dang Doanh, one of main causes for the failure of G7 Mart chain is that it overestimated and overextended itself in a market which has already seen fierce competition amongst domestic and foreign retailers.

Doanh said the company had also failed to “hook up” with the manufacturers, which was a crucial factor in the retailing sector.

“This is a valuable lesson for those entrepreneurs planning to jump into this field,” he said.

Moreover, G7 Mart also assigned logistics tasks, such as goods delivery, to a third party, which often showed no care to its customers.

This only worsens G7 Mart’s failure in competition with other rivals, an employee of the chain said.

“The hired delivery company has simply brought the goods to the customer’s door, dropped it off, asked for the payment and then drove off,” he said.

“What customer would ever want to stay loyal to such stores with such annoying delivering style?”