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Wednesday, 03 February 2016 10:17
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Investment and business environment from the perspective of administrative reform

(LLCT) - As soon as the economic reform and open-door policy began, administrative reforms, particularly administrative procedures, were also implemented. The objective was to discover, remove or revise administrative procedures that were no longer suitable, or too complicated and troublesome, thereby creating favorable conditions for production and business.

1. The ongoing reform of administrative procedures

An investment and business environment consists of any factors that influence an enterprise’s production and business. The favorability of such environments primarily depends on the quality of institutions in which state administrations, specifically administrative procedures, hold the most influence. “Administrative procedures” include processes, methodologies, paperwork, requirements and conditions stipulated by state bodies for resolution of work relating to individuals or organizations, according to the Government’s Decision 63/2010/ND-CP of June 8th, 2010. Administrative procedures must “meet practical needs, be simple, intelligible and actionable, and save the time, costs, and energy of affected individuals or organizations”.

As soon as the economic reform and open-door policy began, administrative reforms, particularly administrative procedures, were also implemented. The objective was to discover, remove or revise administrative procedures that were no longer suitable, or too complicated and troublesome, thereby creating favorable conditions for production and business.

Generally, reform of administrative procedures has always played an important role in institutional reform and improvement of the business environment. However, different periods have seen a variety of methods for such reform. During the last few years, those methods have been particularly accelerated. As a result, the business environment has improved remarkably, which has gained appreciation from the business community and international donors.

The Government issued two resolutions, one in March 2014 and the other in March 2015, on major tasks for the improvement of the business environment and national competitiveness. They focused on administrative procedures in tax, customs, social insurance, construction licensing, real estate, electricity access, establishment and disbandment of businesses, and investment. Tasks included:

Simplifying procedures for establishing a business and reducing the necessary time for these procedures to 6 days. Also, improving other related aspects in order to decrease the waiting time from registration to actual operation.

Improving the procedures and paperwork required for tax payment and reducing the time needed to complete tax payment procedures in order to meet the norm of the ASEAN-6 group, where the average time is 171 hours per year. As a matter of fact, in 2013, businesses in Indonesia spent 259 hours a year paying taxes, those in Thailand spent 264 hours, those in the Philippines spent 193 hours, those in Malaysia spent 133 hours, those in Brunei spent 96 hours and those in Singapore spent 82 hours, whereas in Vietnam,businesses spent 876 hours paying taxes.

Shortening the wait by businesses and investment projects for access to electricity to 70 days at most, conforming to the average 50.3 days of the ASEAN-6 group; 

Streamlining the process, paperwork and procedures for import, export and customs and reducing the time needed for customs clearing in order to meet the average figures of the ASEAN-6 group. On average, exporters of the ASEAN-6 group need 14 days to clear customs and importers take 13 days. The respective figures for Indonesia in 2013 were 17 and 23 days, Thailand 14 and 13 days, the Philippines 15 and 14 days, Malaysia 11 and 8 days, Brunei 19 and 15 days, and Singapore 5 and 4 days, whereas those for Vietnam were 21 and 21 days.

Slashing the time required to declare bankruptcy to no more than 30 months.

After a year of completing the aforementioned tasks, results showed the following:

- The percentage of businesses applying e-tax has increased from 65 to 95 %; time needed for tax payment has decreased by 290 hours, from 537 hours to 247 hours a year. With the revised Laws on Taxes, which the National Assembly approved on 1 January 2015, the time will fall by another 80 hours, from 247 hours to 167 hours a year, compared to the average of 121.

Processes and procedures at international seaports were reviewed and simplified and the one-door mechanism was officially implemented there. The objective was to reduce the time needed for customs clearing from 21 days to 14 days for exports and from 21 days to 13 days for imports, as well as reduce between 10 and 20% of customs costs.

The processes of social insurance payment, the establishment and disbandment of a business, and the provision of electricity for businesses have all been streamlined. The time needed to pay social insurance has decreased by 100 hours, from 335 hours to 235 hours per year. The time required for completing administrative procedures for establishment, reorganization, and disbandment of a business have been cut in half. In particular, the time needed for registering a startup has gone down from 34 days to 17 days, and the wait for electricity from 115 days to 70 days.

According to a World Bank business environment report released in October 2014, by June of that year, Vietnam’s business environment had improved considerably. According to the World Economic Forum’s Global Competitiveness Report released in September 2014, Vietnam’s competitiveness had increased by two places, from the 70th to the 68th among 148 ranked economies. International credit rating agencies also increased Vietnam’s creditability. For example, Moody’s gave the country B2 instead of B1, and Fitch B+ instead of BB-. They have also predicted stability for the country.                      

Some of the commitments made by governmental ministries, agencies and local authorities on the improvement of the business environment have been slowly translated into reality at the grassroots level and in businesses. However, certain governmental ministries, agencies and local authorities have yet to implement or pay attention to the objective of improving the business environment and its methods according to international practices. A number of tasks and solutions have not been carried out in this regard. The impact of the resolution on actual production and on average people’s lives remains modest.

According to international organizations, although the country’s business environment and competitiveness have improved, they remain low compared to regional countries’.

The current implementation of laws, mechanisms, policies, administrative procedures and public affairs remains somewhat ineffective, confusing or troublesome, costing businesses and people time and money. Governmental ministries, agencies and local authorities have yet to pay adequate attention to the improvement of the business and investment environment and competitiveness or have yet to consider it as one of their central, urgent tasks. Moreover, because other countries have focused on improving their own investment environments, Vietnam has been left behind in relative terms. According the World Bank’s Doing Business Report, Vietnam’s business environment in 2015 ranked 78th out of 189 listed economies, six places lower than in 2014, whereas Singapore ranked 1st, Malaysia 18th and Thailand 26th. According to the World Economic Forum, Singapore ranks 2nd, Malaysia 20th, Thailand 31st, Indonesia 34th, the Philippines 52nd and Vietnam 68th in terms of competitiveness.

Based on these results, tasks for 2015 and 2016 are outlined in the following:

Bankruptcy is to be judged within 30 months in 2015 and 24 months in 2016.

Tax payment processes, paperwork and procedures are to be improved. Declaration and payment of taxes including VAT and corporate income taxes, is to take shorter time, to below 119 hours.

Tax refund database is to be built and made public. At least 90% of tax refund claims are to be settled timely and at least 90% of tax payers’ complaints handled timely and in conformity with the law.

Corporate tax codes are to be automatically provided. Business establishment is to take less than three day(1).

2. How the reform of administrative procedures and improvement of the business environment are to take place in coming years       

Although a large number of documents have been reviewed and many administrative procedures removed, the draft of the Socio economic Report to be submitted to the Party comments on the limitations of the administrative reform, particularly the reform of administrative procedures, “The administrative reforms have not been satisfactory in some areas. The capacity for making and enforcing laws, mechanisms and policies remain limited. Some legal documents have not been promulgated promptly or are not realistic. The design and management of strategies for development have not measured up to expectations. Administrative procedures in a number of fields remain troublesome, causing dissatisfaction among people and businesses. The supervision of creating and implementing laws and policies remain somewhat ineffective”.

In order to overcome the aforementioned limitations, it is necessary to take the following measures in the coming period:

Firstly, those quantitative objectives mentioned in the Government’s Resolution 19/NQ-CP of 12 March 2015 on major tasks and solutions to continuous improvement of the business environment and national competitiveness during the 2015-2016 period are to be achieved. Although they are quantitative objectives about the reduction of administrative procedures and time costs, they are of extreme importance because this is the first time in many years of renovation in which administrative reform has set specific targets in relation to ASEAN countries’ and there has been direct, determined instruction from the government in the process.

As a matter of fact, the reform of administrative procedures is not overly complicated or difficult in technical terms, but has been progressing very slowly due to lack of necessary measures. Because of this, the main solution should be to impose administrative discipline on the reform process.

Secondly, besides achieving the quantitative objectives set by the Resolution No. 19, it is necessary to remove mechanisms that give rise to cumbersome administrative procedures. If there is not adequate attention to this aspect of reform, administrative procedures will never end; such mechanisms will keep giving birth to new procedures that need to be reformed. Take “sub-licenses” for example. As in the aforementioned simplification of administrative procedures, the main solution combines legal regulations and necessary punishments.

Finally, in the long run, it is necessary to pay greater attention to the quality of reform policies. The reduction of administrative procedures will be difficult, or may even become a normalized activity, if the quality of policies does not improve. This is a fundamental, long-term task, which requires persistence and planning and is an essential part of institutional reform.

The main solution is maintaining a thorough understanding of the spirit of the reform: a full market economy and integration. Another solution is to raise the standards of professionalism, sense of responsibility, and work ethics of civil servants and government employees, especially policy-makers.

                                                                                                       

Assoc. Prof., Dr. Bui Tat Thang

Institute of Development Strategy

Ministry of Planning and Investment

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