Facing economic crisis, businesses are left in the lurch

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A worker pushes a cart of ceramic tiles at the Quang Minh Ceramics Porcelain Co. factory in Hanoi's Bac Trang village. The firm is among thousands in Vietnam that cut production or closed this year, as the economic crisis continues. Photo: Bloomberg

The increase of 2.4 percent in tax revenue over the first six months that Ho Chi Minh City announced recently is truly shocking, considering that thousands of businesses have closed across the city since the beginning of this year.

Earlier tax revenues were also reported to have gone up in other provinces and cities, like the southern province of Dong Nai with an increase of up to 11 percent, and the northern province of Lang Son with 20.5 percent.

Overall, Vietnam's tax revenue has risen by 2.4 percent over the first half year as compared to the same period last year, according to the Central Department of Taxation.

The figures have been characterized as "admirable," given the current economic crisis. While the whole economy is struggling with sluggish production and the death of so many businesses, the government tax agency has not only been able to maintain its target revenue, but has actually managed to increase it.

In fact, in recent years, regardless of economic difficulties, the agency has always been able to maintain its tax revenues. For example, in 2010, when initial warnings were issued about the increasing rate of bankruptcies among businesses, tax revenue increased 11 percent over the previous year.

Last year, when local businesses were seriously stricken by inflation and high interest rates, the tax agency was able to keep its head above water with the year-on-year tax increase of 16.3 percent.

With the "tradition" of collecting as much tax as possible at year's end to ensure revenues are higher that the previous year, it is all but a certainty that the tax industry's income this year will also rise, although the economic crisis continues to worsen.

The tax industry's increasing revenue along with the huge and increasing profits local banks gained last year and over the first four months of this year are the only two "bright lights" within the current economic gloom.

However, the "bright" figures are far from uplifting.

One should not forget that tax and interest rates are the significant factors which determine whether businesses live or die. The higher taxes and interest rates are, the weaker businesses become. Therefore, if tax revenue continues going up and banks keep earning giant profits from interest rates, more firms will go out of business.

Last month the Vietnam Chamber of Commerce and Industry revealed a survey showing that businesses, especially small ones, were unable to benefit from supportive policies like low interest rates and tax breaks.

VCCI General Secretary Pham Thi Thu Hang then commented that preferable policies have yet to target small and medium enterprises.

It can be argued that banks' huge interest rates are understandable because banks are businesses and thus, organized to maximize profits. Therefore, the blame must rest upon agencies that fail to guarantee that the government incentives are applied properly and which allow banks to make use of ineffective policies in order to exploit businesses.

But taxes are different. Tax rates represent the government's efforts to regulate markets. When the economy falls into deflation, the government is supposed to issue effective, large-scale policies to give businesses tax breaks.

However, here in Vietnam, tax revenues are on the rise, while numerous businesses are dying.

Which begs the question, where are businesses supposed to turn when they are in need?

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