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Financial policies for development of economic regions.

18:04 | 25/12/2016

VCN - The development of key economic regions is extremely necessary for a developing country like Vietnam today. 

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financial policies for development of economic regions

The State budget’s revenues in the key economic regions from 2010 to 2015 accounted for 84% of the total country’s revenues and were much higher than the revenues rate of 70.3% of the period from 1998 to 2010

Over the past time, many incentives in accordance with regions, areas and objects, etc were actively issued, however they were basically specified and clarified. The issue of a unified and comprehensive financial policy system for promotion of the development of key economic regions is one of the most concerned tasks in the coming period.

Specific incentives

In our country, the 4 key economic regions includes the northern, the central, the southern and the Mekong Delta account for 27.42% of the whole country’s total area and 27% of the whole’s country total population. Over the past time, these key economic regions had significant contributions. In comparison with the whole country, the GDP rate of the key economic regions increased from 51% in 2003 to 70% in the period from 2010 to 2015, contributed to the State budget in 2015 revenues 1.37 times higher than in 2010. The State budget’s revenues of the key economic regions in the period from 2010 to 2015 accounted for 84% of the country’s total revenue, much higher than the revenue rate of 70.3% of the period from 1998 to 2010. The State budget revenue growth rates of the key economic regions are also 2-3 % higher than the country’s average revenue growth. That development of the key economic regions was due to the significant support from financial mechanism and policies.

According to Dr. Nguyen Viet Loi – Director of the National Institute for Finance, the Ministry of Finance, many financial policies were issued to develop the economic regions through incentives in accordance with regions, areas and objects, which provinces in the key economic regions meets the standards and are eligible for enjoying those policies.

The first is preferential policies on tax, in which the economic zones; difficult projects and the special difficult social-economic areas; and some projects belonging to the preferential development fields are applied a higher preferential rate than projects outside the economic zones and the special difficult social-economic areas, for example: reducing 50% of Personal Income Tax for Vietnamese citizens and foreigners working in the economic zones ; not imposing VAT for goods and services produced and consumed in the non-tariff areas in the economic zones and goods and services imported from foreign countries to the non-tariff areas in the economic zones; not imposing Special Consumption Tax (SCT) for goods produced and consumed in the non-tariff areas (except below 24 seat cars) in the economic zones; and exempting Import Duty for goods exported from non –tariff areas in the economic zones to foreign countries or imported from foreign counties in to the non-tariff areas in the economic zones, which are only used in the non-tariff areas; and goods transported from a non-tariff area to another non-tariff area.

For the State budget’s allocation, besides polices generally applying for all localities, there were some specific policies issued to apply for some certain economic regions and some financial policies applying to some localities in the key economic regions to boost the economic growth and economic restructuring; and promote the developments of key sectors which are strengths of the regions. Additionally, there were specific policies for cities under the Central authority and a special mechanism system for each locality, which focused on targeted additional rates from the Central budget to the local budget and rewards for excess revenues.

Measures to mobilize the investment capital resources for development of technical infrastructure system are relatively diverse. Capital resources were mobilized from local budgets, the targeted supporting capitals of the State budget, the issue of construction bonds, ODA, preferential credit and the attraction of cooperation under Public-Private Partnership

Insufficient motivation

Actually, although the financial policies for the development of economic regions had important achievements, they still did not meet the development requirements and were unreasonable, common or not strong enough to facilitate the competitiveness for the economic regions.

To prove this, Dr. Cao Ngoc Lan – Head of the Board for Regional Development, the Institute for Development Strategies, the Ministry of Planning and Investment analyzed: the number of provinces and cities which contributed to the Central budget were still low with only 13 localities while the number of localities which depended on the State Budget was high, accounting for 80-90% of local budgets. Besides, the specific policies for each locality were still insufficient. Currently, preferential policies on taxes, fees, charges have been not regionally separated and took advantages of the potential and strength of the localities as well as not reducing current obstacles of localities. Furthermore, the mechanism of State budget’s allocation was not really reasonable to create motivations for the regions’ development. The preferential policies for the key economic regions, economic zones, development triangle and economic corridor, etc have been issued but not greater than those for other areas in order to create encouragements and breakthroughs in the attraction of investment or attendance of foreign strategic partners.

There was a lack of a specific policy system for the economic regions and financial policy system for capital mobilization in the regional links to focus on investing in the infrastructure system connecting localities in the regions and between key economic regions with neighboring regions. Moreover, preferential policies of the budget’s allocation for localities in the economic regions as well as in the key economic regions did not become powerful financial resources to perform inter-provincial projects and reduced the activeness on budget of the localities in the regions.

That was caused by the unclear orientation of the development of the key economic regions, leading to difficulty in the issue of financial policies for the regions. The shortcomings in the budget allocation policies for the regions, the preferential policies on land, policies on technology recovery, and policies on staffing development in the key economic regions have not created motivations to attract resources into the fields which need breakthrough. To address this, the completion of mechanisms and policies including financial polices to facilitate the development of regions, is needed.

In order to build and deploy measures to encourage the development of the key economic regions, the establishment of a comprehensive policy system is really necessary. Particularly, the financial mechanism, and policies issued must ensure stability and consistency for each strategic development period of the country; minimize complicated provisions; and decentralize the rights and levels clearly and transparently.

financial policies for development of economic regions Specific financial policies for each economic region needed

VCN - That was confirmed by many economic experts at the science conference “Regional economic development: questions ...

Associate Professor Dang Van Thanh – Chairman of Vietnam Association of Accountants and Auditors suggested that: a Regional Development Steering Committee to collaborate, guide, operate, support and supervise the performance of regional development plans under the direction of the Prime Minister should be established. Along with that is the establishment of a Regional Economic Development Fund as an institution for credit investment development with legal status, independent economic accounting under agreement, and supervision in policies and regimes of the Ministry of Finance and the State Treasury. Under the directions of the Government, the relevant ministries, departments and localities in each region, implement the review and adjustment of development plans. Thereby building and operating a comprehensive financial policy system to create leverage as well as motivations spreading out between localities in the economic regions.

The budget’s allocation must be centralized and outstanding.

From the view of an insider, Dr. Nguyen Viet Loi said that in the coming period, the financial polices, especially preferential policies on tax and land must be forwarded to the economic zones to promote the development of the key economic regions. The completion of the mechanisms to encourage the economic elements including foreign resources joining construction investment of infrastructure and interprovincial traffic must be carried out. An extremely important measure is preferential policy on State budget allocation which must be centralized and more outstanding to create more investment resources for the social–economic infrastructure projects of the localities. To perform this, the key economic regions must have clear development orientation and strategies as basis for building appropriate policies. This plan must be implemented drastically from the Central authority as an orientation for regions and localities to build to ensure harmony in public benefits against the distraction of general benefits and conservative ideology.

By Hong Van/ Huyen Trang