The Ministry of Finance and the Vietnam Chamber of Commerce and Industry (VCCI) have drawn two completely different pictures about the health and performance of local businesses.

While the ministry said a new round of tax incentives have become a real rejuvenation potion for local businesses, a recent survey by the VCCI showed a much different story.

There are more local enterprises resuming operations due to the Ministry of Finance’s tax exemption or reduction program following Resolution No.13/NQ-CP of the Government, said a senior official of the ministry.

The central tax agency has deferred a total of VND10 trillion in value-added tax in the first six months of the year for around 208,250 local firms, said Deputy Minister of Finance Do Hoang Anh Tuan in a recent meeting in Hanoi.

Specifically, small and medium enterprises (SMEs) are the biggest beneficiaries as they accounted for 99.5 percent of the total firms who are enjoying the incentives, and 89 percent of the total deferred tax values.

In addition, another 8,260 firms have had VND374.5 billion in corporate taxes deferred, while 3,150 others enjoyed lower land lease rates.

Apart from the tax exemption, reduction, and extension programs, the corporate income tax has also been extended for nine months for tax debt from 2011 onwards, along with a maximum 12-month extension for payment of land use fees for local investors with financial difficulties.

The value of all the tax incentives and other funding for infrastructure construction in rural areas, along with the total amount of money set aside to back local firms in overcoming economic woes, has reached some VND29 trillion, Tuan said.

Finance Minister Vuong Dinh Hue said in a recent TV program that so far the tax incentives have been worth VND20 trillion.

As a result, the number of business facing dissolution, bankruptcy, or suspension has reduced dramatically. Some 6,100 firms have returned to work, and those declaring that they are making a profit have increased an average of 3 - 4 percent per month.

According to the ministry’s initial estimates, in the first nine months of the year, around 51,000 new enterprises have been established with a total registered capital of VND350.5 trillion, an increase of 0.7 percent in registered capital over the same period in 2011.

Over the last 20 years over 675,000 enterprises have been established, of which about 472,000 enterprises are active, accounting for nearly 70 percent.

The results have so far been very positive, said Minister Hue on the TV program.

A different picture

Local enterprises and entrepreneurs are facing their most dangerous moment in the last 20 years, Vu Tien Loc, chairman of VCCI told Tuoi Tre in a recent meeting.

“VCCI’s latest data, up to September 20, shows that of the 675,000 enterprises which have been established over 20 years, only 471,000 are active.”

“This means that about 200,000 businesses have left the market.”

“Particularly this year, with 51,000 new businesses established, the number of closed businesses has amounted to over 40,000. Thus, the number of bankrupt enterprises was larger than the new establishments.”

“Among active enterprises, many are suffering huge losses. Of these, it is true that there are some with poor performances and weak governance.”

“But there are many who have good competitiveness and governance, but they are stuck since their businesses partners have gone bankrupt so they cannot ask for debt repayment; or due to the gloomy market they could not sell their products and face rising unsold inventories.”

“I believe that the State's duty is to help those firms that are performing well to survive and overcome this stage of difficulties due to cash flow stagnancy. They do not deserve "to die".

Tough times ahead

A recent VCCI survey on business prospects from now until the end of the year has revealed that many business indexes, including profit per unit of product, total sales, and inventories, are getting worse, Pham Thi Thu Hang, Secretary General of VCCI, told Tuoi Tre.

Many of the surveyed companies are expecting the last quarter to be the toughest period of 2012, when both bad debts and rising inventories take their tolls, Hang said.

Most companies do not have a viable solution for handling bad debts. Regarding feasible solutions to ease unsold inventories, Hang stressed that local companies should find new markets amid the global gloomy economic picture.

Therefore, most companies are forced to lower their prices by 10-30 percent compared to previous prices, Hang added.