VIETNAM ECON HIGHLIGHTS: FORECASTS OF LOWER TRADE, TAX

UNCLAS HANOI 000071 STATE FOR EAP/MLS MBROWN SINGAPORE FOR TREASURY TREASURY FOR SCHUN USTR FOR DBISBEE E.O. 12958: N/A TAGS: ECON VM SUBJECT: VIETNAM ECON HIGHLIGHTS: FORECASTS OF LOWER TRADE, TAX FLIP-FLOPS, HIGHER ELECTRICITY RATES REF: A) 08 Hanoi 1329 ("Private Sector Tells Vietnam to Raise its Game); B) 08 Hanoi 1298 (National Assembly and Luxury Taxes); C) 08 Hanoi 1391 ("Further Effects of Global Financial Crisis") VIETNAM PROJECTS LOWER TRADE NUMBERS IN EARLY 2009 -------------- -------------- ¶1. (U) The Government of Vietnam's (GVN) preliminary trade estimates for January 2009 show a significant drop in trade. The GVN expects imports to be 45% lower than for the same period of 2008, and exports to fall down by 24%. The silver lining is that the trade deficit for January 2009 is expected to be $300 million, much lower than the $2.41 billion for January of last year. Key commodities like crude oil (down 50%) and coffee (down 19%) were down, although rice exports more than doubled from January 2008. Last year was a record year, with total trade of $142.9 billion and a large deficit of $16.9 billion. TAX FLIP-FLOPPING CONTINUES IN 2009 -------------- ¶2. (U) The Government of Vietnam (GVN) continues to equivocate on taxation policy, signaling in early 2009 that it may take yet another look at laws on personal income tax (PIT) and luxury taxes, both of which have been the subject of widespread criticism. After much public hand-wringing, the GVN decided to go ahead with the new PIT, which foreign investors claim will put Vietnam at a disadvantage to its regional competitors (REF A) for taxing expat benefits like housing and schooling for dependents. To appease the critics, the Ministry of Finance said that it would not collect taxes until May and hinted that it would either change the law or expand deductions. The GVN was also criticized for rushing in a luxury tax that gave businesses like local automakers (including Ford and GM) little time to prepare. That tax may also come under review, now that the Trade and Industry Ministry has proposed that the taxes be suspended to avoid hurting the auto industry, whose sales tumbled in the second half of 2008 (REF B). In the meantime, the GVN will reportedly reduce by as much as 50% the value-added tax on a number of goods, including cars and automobile spare parts, from February 1 to December 31, 2009. TAX HIKES ON OIL AND GAS, MINING, FORESTRY AND SEAFOOD -------------- --- ¶3. (U) The GVN also announced new royalty tax rates on mining and forestry commodities on January 19 that the industry claims will hurt Vietnam's competitiveness at a time when it can ill afford to do so (REF A). The new taxes will also affect seafood products like wild-caught shrimp and squids, and oil, gas and coal. Crude production of up to 20,000 barrels per day would be taxed at between 6-8%, and over that, at 8-10%. ELECTRICITY RATES TO GO UP IN SECOND QUARTER -------------- ¶4. (U) The GVN is currently mulling a plan to raise retail electricity prices by 8-10% in 2009 to attract more investment in Vietnam's energy sector. State-run Electricity of Vietnam (EVN) asked the government to hike prices by 16-20%, but Vietnam's electricity regulator overruled the request, saying the increase would be too high in the current economic climate. Prime Minister Nguyen Tan Dung voiced support for a retail hike in 2008, before the onset of the global financial crisis, and is expected to approve the lower request. Currently, EVN charges households VND 862 (4.9 U.S. cents) per kilowatt hour and industrial customers VND 900 (5.2 cents). Thailand, Singapore, Indonesia and Malaysia charge from 14 cents to 15 cents per kilowatt hour, according to EVN. AS POVERTY REDUCTION CONTINUES, GVN MULLING RAISING THE BAR -------------- ¶5. (U) Although the GVN fell short of its poverty target in 2008, it managed to reduce poverty levels from 14.8% to 13.1%, a considerable achievement in a year in which it experienced double digit inflation (REF C). The GVN is debating whether to raise the poverty threshold by as much as 50% from its current VND 200,000-260,000 monthly (approximately 40-50 cents a day, not adjusted for PPP) to reflect price increases. According to the Labor Ministry, if the proposal is approved, the poverty rate would increase to between 16-17 percent. SOME PROVINCES STILL THINKING BIG IN 2009 -------------- ¶6. (U) Despite the world economic crisis, the northern province of Thanh Hoa is moving ahead with building the multi-billion dollar Nghi Son Economic zone on the shores of the South China Sea. Provincial authorities are planning to build two deep water ports, a multipurpose port, a $6.2 billion dollar oil refinery, two cement plants, three thermal coal fire power plants, a liquid natural gas plant (LNG) and a $113 million dollar road project. The province is banking on a combination of foreign investors (Mitsui Oil, Kuwait Oil),state-owned companies (PetrolVietnam, EVN) and the central government picking up the tab. In a recent visit Econoff saw nothing to disprove these claims, as construction was moving forward on many of these projects. MICHALAK