Workers at Nha Be Garment Corp make clothes for export

Lawyer Truong Thanh Duc said that high lending interest rates were not the only cause behind many closures of companies this year.

Even though loan interest rates have been cut to 13-14%, most companies still are reluctant to take out loans.

Speaking to Tuoi Tre newspaper, Duc said other factors, including taxation, inventories, higher expenses for transport and electricity and decreasing purchasing power had affected business growth.

According to a report from the Policy and Development Institute, 4,105 enterprises were dissolved in the first six months of the year, up 35.4% compared with the same period last year. At least 22,219 enterprises had to suspend operations, up by 1.3%.

Duc said that although Vietnam's current 25% corporate income tax was not that high, if compared with the 28-per cent rate in other countries, Vietnamese businesses were paying higher taxes because many expenses were not deducted before tax payments were made.

Costs for advertising and marketing activities were limited to only 10% of companies' total turnover, while there was no limitation for this kind of expense in many other countries, he said.

According to the General Statistics Office (GSO), enterprises'production and business activities were affected by various factors, including lending interest rate, inflation, erratic economic changes and high expenses.

Only 28% of enterprises that were shut down because of a shortage of capital. Twelve% closed because of difficulties caused by business locations and the remainder due to too high input costs such as taxation, transport and electricity, according to the GSO.

To improve the situation, the Government should reduce enterprises'contributions to the State Budget (corporate income tax) so they can recover financially.

In addition to cutting the corporate income tax, the Government should also develop measures to ensure a stable business environment, and keep prices of essential materials unchanged to ensure that input costs for businesses do not rise, according to the GSO.

Experts from the Ministry of Planning and Investment suggested that both the government and enterprises focus efforts to develop the domestic market in order to improve its purchasing power.

With a population of more than 86 million, the country has a large market in which businesses can sell their products, particularly standing inventories that are now one of their biggest problems.

To do this, the Government should create policies to encourage people's spending as well as change their spending habits, with priorities given to buying domestically produced goods.

Experts, however, said that the immediate tasks now to improve enterprises' health were to settle bad debts, reduce corporate income tax to 20% and value-added tax to 7%, and create conditions for enterprises to get access to long and medium-term capital resources, such as Official Development Assistance.