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Vietnam’s draft law on SME support disappoints experts

Friday, April 14, 2017, 16:01 GMT+7

Vietnam’s draft law on supporting Small and Medium Enterprises (SMEs) has failed to live up to expectations from local businesses and experts who criticize its lack of practical grounds.

The proposed piece of legislation, compiled by the Ministry of Planning and Investment, is aimed at facilitating the access of SMEs in Vietnam to government support through favorable policies and incentives, as well as encouraging non-public organizations and individuals to provide support to SMEs.

However, experts who attended a seminar on Thursday to review the law were broadly disappointed by its provisions, which they described as “illusory and impractical,” with some even holding the potential to harm local SMEs if the law is passed.

Phan Dang Tuat, vice president of Vietnam Association of Supporting Industries (VASI), said he was “saddened” by the proposed law, comparing it to “a literature essay that isn’t even good enough to be scored”.

The 20-page draft law featured 38 articles, highlighting seven ways in which Vietnamese SMEs will be supported, including access to capital, tax, and location; technological capabilities; market expansion; information and consultancy; and human resource development.

However, Tuat pointed out that the word ‘support’ in the law’s name was tabooed by free trade agreements of which Vietnam is a signatory, as it indicates that the Vietnamese government is not facilitating fair competition among businesses.

Moreover, the seven categories of support were deemed vague and meaningless, considering the fact that they are already governed by other existing laws.

“The draft law suggests that SMEs are to enjoy favorable loan rates from banks, but to do so would violate the Law on Credit Institutions,” Tuat explained.

Tuat suggested that the piece of legislation be named the “Law on Protecting SMEs,” as true enterprises need protection to conduct their business in a fair manner rather than support from the government.

“All they need is fair treatment, a transparent business environment, and protection from barriers presented by free trade agreements and bureaucratic red tape,” Tuat said.

Meanwhile, Vu Duc Giang, president of Vietnam Textile and Apparel Association, pointed out that the law is flawed from its definition of an SME.

SMEs are defined by the proposed law as enterprises with 300 or less employees, and which in the previous year either had less than VND100 billion (US$4.46 million) in capital or profit no more than VND300 billion ($13.39 million).

According to Giang, such universal definition leaves most garment companies, though employing thousands of workers, being categorized as an SME due to small capital.

Giang suggested that the definition of an SME be adjusted to adapt to the characteristics of each industry.

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