In cash or in kind

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Workers at the Vicem Ha Tien cement factory in the southern province of Binh Phuoc

A province in southern Vietnam plans to allow a local cement factory to pay part of its tax dues in cement instead of cash.

Experts have different opinions on the issue. Some laud it as a mutual-help initiative that should be encouraged, but others feel it would not be fair to other firms.

Binh Phuoc announced the plan in October, saying the unconventional policy will benefit both the province and the Vicem Ha Tien factory.

Under the plan, yet to be approved by the central government, the cement producer can clear some of its stockpiles while the province will have a cheap source of cement, sold without profit, to build roads in rural areas over the next three years.

Tran Viet Thang, general director of Vicem Ha Tien, said cement companies have supplied their products to many cities and provinces to build roads. Usually the producers receive their payment three to six months later.

Under the proposed deal with Binh Phuoc, Vicem will provide the province with between VND20 billion to VND25 billion (US$0.96-1.20 million) worth of cement a year and the money will be deducted from the company's tax dues. The rest of the tax, including corporate income and value-added tax, will be paid as usual.

Local media reports say the company's plant in Binh Phuoc usually pays VND40 billion in taxes every year.

"It is just a proposal now and both sides will have to look into many different aspects," Thang said. "On our side, we are concerned with the tax and corporate laws. For instance, if we have already "˜sold' the cement to the province and tax authorities still want us to pay our taxes in full, we'll be stuck."

It is also necessary to make sure that the cement sold at cost to the province will not find its way back to the market, he said. "If that happens, it will hurt sales of the company."

The cement industry has been struggling with low sales amid a prolonged real estate crisis. Consumption fell 6 percent in the first nine months from the same period last year, to 34.6 million tons. That is equal to 62.9 percent of the target for 2012.

Cement inventories in the country rose 53.1 percent in the first ten months from a year ago, according to the General Statistics Office.

Economist Le Dang Doanh said there should be support for policies that can help businesses reduce inventories, ramp up production and create jobs for workers.

In particular, efforts to facilitate the development of housing and road projects and boosting the consumption of construction materials should be encouraged, he said.

Lawyer Tran Xoa from Minh Dang Quang Law Firm said although the proposed policy is unconventional, it does not mean the province is breaking any law.

There are always exceptions that can be made as long as a province or a company can come up with a good solution that the government can approve, he said.

But not everyone agrees.

Economist Pham Chi Lan argued that policies to support businesses cannot go against market principles. This is no longer a time in which people can just barter their goods and services without paying money, she said.

Besides, if the government wants to buy something, it is required to go through a bidding process, Lan said. "It is not fair if only one company can pay its tax in goods. It will likely lead to many problems later."

"So I think things should stay the same the company sells its goods and gets the money to pay tax."

Some legislators also believe it is a bad call.

"It would be wrong if all companies facing difficulties are allowed to pay taxes with what they produce," said representative Nguyen Ngoc Bao from the northern province of Vinh Phuc.

"This will set a bad precedent, and more importantly it really goes against market rules. Money and goods are different and people can't just pay in goods.

"There must be other practical solutions to stimulate sales instead. If we try to solve the problem this way now, it's not fair because it only benefits those involved in the deal."

Bao said Binh Phuoc is trying to do a good thing here but it should buy cement from Vicem Ha Tien instead of receiving it in exchange for tax payments.

Representative Nguyen Ba Thanh from Da Nang said as tax revenues have to be collected in cash, Binh Phuoc Province will break the State Budget Law if it collects them in kind.

"If businesses bring in steel, bricks and tiles to pay taxes, what will the government do?" he asked.

"Maybe the province doesn't have any other option, but I don't think this is the right solution."

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