STATE-OWNED ENTERPRISES REFORM

Underwriting, auctioning shares in privatised SOEs

As a result of the June 19, 2002 Decree 64/2002/ND-CP about the privatisation of SOEs into joint-stock compa­nies, the Ministry of Finance (MOF) has issued guidelines for underwriting and auctioning shares in SOEs being privatised. Shares in an SOE being privatised may be sold to the public by auction.

An auction can be conducted through a securities company, a finance company, a commercial bank or other credit or finance institution. The auction can also be underwritten by an intermedi­ary financial institution; if shares are left after the auction the underwriter(s) must take up the balance at the reserve price.

An auction board will be appointed to prepare the auction conditions, monitor, decide on a reserve price, issue registra­tion cards to participate, publish the results or declare an auc­tion unsuccessful, and report to the body which issued the privatisation decision.

Circular 80 (September 12, 2002) sets out the responsibili­ties of the auction board and auctioneer, information that must be published and auction procedures.

An organisation or individual who wants to participate in the auction must:

- have legal status or be an individual;

- have an account opened with a bank or credit institution if the organisation or individual is a foreigner;

- fill out a valid application form for registering;

- register to purchase a specified number of shares at a specified price - the number of shares must not be less than 100; and

- pay a 10 per cent deposit based on the amount and price of the shares registered to buy.

The Circular describes how a share auction works, but the example used seems to describe a form of tender process rather than a competitive auction.

Circular 80/2002/TT-BTC, September 12, 2002

BANKING

Banks get overdrafts, overnight lending from State Bank

The SBV has issued regulations (October 22, 2002) cover­ing the provision of overdrafts and overnight lending to banks that are members of the inter-bank electronic payment system.

A bank requiring an overdraft or overnight loan must make an application to the SBV, comply with the provisions of Deci­sion 1085 and provide a pledge of assets as security.

The types of assets the bank can pledge are Treasury bonds and bills, SBV bonds and bills and other assets as stipulated by the SBV.

The overdraft level must not exceed 95 per cent of the value of the pledged assets. An over-night loan cannot exceed the actual overdraft balance at close of business on the rel­evant day.

The regulations also have provisions concerning interest rates and procedures for carrying out overdrafts and overnight lending in the inter-bank electronic payment system.

Decision 1085/2002/QD-NHNN, October 7, 2002

TAXATION

Real estate depreciation rules

In reply to the International Trade Consultancy Corporation, I the General Department of Taxation has advised that where an enterprise is involved in leasing real estate or trading in real estate, the enterprise is subject to the MOF fixed asset depre­ciation rules.

Where an enterprise pays land rent annually or periodi­cally, the rent will be allocated to business expenses and val­ued over the relevant period.

Expenses involved in the survey or design of a property will be accounted for in the construction price for depreciation purposes. Expenses of an enterprise trading in real estate in­volving land use rights must be accounted for in the capital price for the house, whereas commission paid will be treated as a business expense.

Official 1 Letter 37552/TCT-CS, October R 2002

INVESTMENT

Foreign-funded projects should re-register

The General Department of Taxation has advised that where a foreign-invested enterprise (FIE) received its investment li­cence before August 1, 2000 and became entitled to corporate income tax incentives included in Decree 24/2000/ND-CP (July 31, 2000). The FIE must apply to the body which issued the investment licence to amend it to include the new incentives. The new incentives do not apply to the FIE until the date on which the licence is amended.

Official Letter 3670/TCT/CS dated October 1, 2002

BANKING

Unsecured SOE debts to be re-assessed

The Ministry of Finance has issued guidelines for State­-owned commercial banks (SOCBs) and State-owned en­terprises (SOEs), for reassessing outstanding unsecured SOE debts to SOCBs.

Assets of an SOE will be evaluated on their quantity and value as stated in the SOE's account books, or in its last finan­cial statement. The value will only be reassessed if the assets are unused assets, assets waiting to be liquidated, outstanding materials or materials of bad quality.

The value of assets is the total value, less the value of the following:

- assets belonging to State reserve funds;

- assets invested from the SOE's bonus or welfare fund (such as kindergartens, nursery schools or clinics) and State­ financed staff accommodation; and irrecoverable debts. Irrecoverable debts include:

 - a debt where the debtor is a dissolved or bankrupt enter­prise or organisation, or where it has ceased to operate;

   - a debt of a debtor who is dead, missing or in jail and his successors are unable to pay the debt;

  - a debt where the debtor has been allowed to write off its debts; losses arising from the sale of receivable debts;

  -  the costs of recovering receivable debts when they are higher than the debt being recovered; and

 - receivable debts which have been overdue for more than three years and where the existing debtor is still incurring losses. When determining an SOE's ability to repay unsecured debts take the value of the assets (as referred to above), less the following:  the value of security assets mortgaged or pledged to a third party;

. assets created from loan funds and assets ordered by a court to be handed over to a third party;

 . debts payable to employees, including severance allowances; debts payable for social insurance; and the balance in the bonus or welfare fund.

Circular 74 (September 24, 2002) provides a formula for calculating the coefficient of the ability to repay unsecured debts and a formula for calculating the actual value of the balance of outstanding unsecured debts.

Circular 74/2002/TT-BTC dated September 9, 2002

Surveillance of joint-stock banks amended

The State Bank has amended certain articles of Decision 215/1998/QD-NHNN5 (June 23, 1998) relating to the sur­veillance of Vietnamese joint-stock credit institutions (JSBs). A JSB will be put under surveillance if:

. There is a risk of the JSB losing liquidity ie, the JSB fails to ensure its liquidity ratio (the ratio of its current liquid assets to its current liabilities) is at least one, more than three times per month.

. The JSB's bad debts represent 10 per cent or more of its total loan balances or 100 per cent or more of its equity.

The JSB's accumulated losses and amounts paid to cover its risk contingencies exceeds 50 per cent of its total equity. The JSB monitoring control board is able to suspend the rights of JSB management boards, the members of boards, general directors and deputy general directors from managing, supervising or controlling JSBs, or to ask the State Bank gov­ernor to order suspension.

Decision 1071/2002/QD-NHNN dated October 2, 2002

TAXATION

Sidihon imports 6-8 tonne trucks duty-free

The Ministry of Trade (MOT) has advised that Sidihon nvestment Co Ltd, a foreign invested enterprise operating under the Law on Foreign Investment in Viet Nam, may import two 6-8 tonne trucks free of duty even though they can be do­mestically produced, because they fall within the ambit of "spe­cialised means of transport" under Decree 24/2000/ND-CP dated July 31, 2000.

The trucks are also exempt from payment of VAT because only vehicles of under 5 tonnes that are capable of being produced domestically are subject to VAT and the trucks imported by Sidihon Investment Co Ltd weigh over 5 tonnes.

Official Letter 3694/TM-DT

FIEs must declare VAT on promotion costs

The General Department of Taxation (GDT) has advised the Long An Tax Department that foreign invested enter­prises (FIEs) are required to declare VAT by the deduction method for goods bought for sales promotions, advertising and marketing.

Also, those goods are not subject to the limits on advertising and promotional expenses set out in Circular 13/2001/TT-BTC dated March 8, 2001 of the MOF, provided the FIE can produce complete and valid documentation.

Official Letter 3563/TCT/NV5

Cigarette exports lose tax break

The MOF has advised that cigarettes made in Viet Nam and exported on or after August 1, 2002 under a foreign trade­mark are no longer eligible for refunds of special sales tax. Official Letter 10283/TC-TCT

LAND

Ministries and provinces examine land use

The General Department of Land Administration (GDLA) has indicated that it has received reports from various min­istries and sectors, and 54 provinces and cities under central authority, on preparing an inventory and examining land use by their subsidiaries.

However, some ministries and sectors have not yet pro­vided full reports, while some provinces and cities have not given full reports on their master plans for using, allocating and leasing land or on site clearance and compensation in their localities. The final reports should be submitted by October 31, 2002 so that the GDLA can present a consolidated report to the prime minister.

Official Letter 1244/TCDC-DKTK

TRADE

Government to develop service trade

The Government has instructed various ministries and Gov­ernment bodies to develop policies for trade in services for the 2003-10 period. The MOT is responsible for co-ordinating with the ministries and bodies in studying and submitting to the Government in the second quarter of 2003, various trade devel­opment policies in respect to domestic services, the import and export of services, and foreign investment in the service sector specifically in respect Of tourism, post and telecommunica­tions, banking, finance, insurance, and the transport and for­warding of goods.

The policies must relate to, and enable the proper imple­mentation of, the duties and objectives of sectoral and eco­nomic strategic and development plans and must accord with undertakings Viet Nam has given to ASEAN and the US, and under other bilateral and multilateral agreements relating to services.

The MOT is to chair an inter-sectoral working team to carry out the study and formulation of policies for developing trade in services.

Official Letter 1135/CP-KTTH

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