P 230801Z JAN 09
FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 9069
INFO AMCONSUL HO CHI MINH 
ASEAN MEMBER COLLECTIVE
ASIAN PACIFIC ECONOMIC COOPERATION
DEPT OF TREASURY WASHINGTON DC
DEPT OF COMMERCE WASHINGTON DC

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