More trouble in the offing for Vietnamese garment firms

26 Sep '12

2 min read

Vietnamese garment firms would be facing a lot of hardships if the Ministry of Finance’s (MoF) draft proposal, to end the 275-day grace period for payment of taxes on imported goods meant for making export-oriented products, is actually implemented.

Existing law allows garment firms a 275-day grace period for tax payment. However, the MoF has prepared a draft proposal for amending Article No. 42 of the existing tax law to impose more stringent tax payment rules on enterprises that import raw inputs to prepare products for exports, as well as on those companies that import goods for re-export.

The amended law would require companies to pay taxes in advance, prior to customs clearance.

According to the Vietnam Textile and Apparel Association (VITAS), if the proposal is accepted, it would require Vietnamese garment firms to arrange for US$ 800 million per annum for tax payment.

Although the enterprises would be able to claim refund later, they would first have to arrange for money to pay tax. As much time would go in administrative formalities to claim the refund, it would also affect the competitiveness of the enterprises.

The draft proposal contains a provision for allowing companies to enjoy the grace period, if they provide guarantee from a commercial bank. However, experts do not consider it as a feasible option as they feel it is almost impossible to obtain bank guarantee due to highly stringent norms. Enterprises would be required to place a deposit, pay fees and would also have to mortgage assets with banks. All this would considerably push up their production costs.

The implementation of the new proposal would also considerably raise the time taken for import of every consignment. It is especially so for garment firms, as they need to import several kinds of materials from different suppliers, and also because these consignments come at different times throughout the year.

If the proposed regulation is approved, importers would lose much time to get their consignments cleared. Meanwhile, any delay in customs clearance would badly affect the production schedules of the enterprises, which would have to bear the consequences of late deliveries.

Fibre2fashion News Desk - India

More Apparel/Garments News - Vietnam...