Land Tax Report

Mekong Economics is proud to announce the publication of the “Vietnam 2023: Options for Property Tax Reform” policy paper, written by Mekong Economics’ Chief Economist Adam McCarty and International Economist Ferdinando Cinotto. 

Conceptualised in the context of Vietnam’s 2023 revision of the Land Law, this policy paper is a contribution to the burgeoning debate on Vietnam’s land and property taxation policies. The aims of the paper, methodologically achieved by leveraging insights from mainstream economic theory, relevant academic literature, and comparative international experiences, are (1) to describe the current status of the Vietnamese land taxation system, (2) to outline its significant issues in the areas of property taxation, property valuation, and land leasing, and (3) to propose appropriate policy reforms for the Vietnamese economy. 

Consequently, the policy paper pushes forward three significant policy reforms for Vietnam: first, a transition from Vietnam’s current system of lump payments for long-term land leasing to a new system of annualised, predictable, and stable taxation; secondly, the establishment of modern, technology-based methodologies of market-led property valuation; and third, the increase of property tax rates to a level of 0.5% ~ 0.75% of the market-assessed value.

In terms of reform implementation, the paper argues in favour of a comprehensive plan over a 15-year transitional period, as previously supported in a linked World Bank 2022 report. More specifically, the plan should employ monitorable key performance indicators, such as targets for property tax revenues, and piecemeal policy pilot schemes.

It is the authors’ hope that the proposed reforms will be taken up and discussed by policy stakeholders in Vietnam, so as to guide the current land taxation reform process towards more efficient, sustainable, and fair outcomes.

Vietnam Counts the Economic Cost of the Covid-19 Epidemic

Vietnam may have reported only 16 confirmed cases of Covid-19 but the deadly coronavirus is still having a significant impact on the Southeast Asian nation’s economy, as factories struggle to secure the raw materials they need from neighbouring China.

“Vietnam is suffering economically, but less than China,” said Adam McCarty, chief economist at Mekong Economics in Hanoi.

“Schools remain closed, tourists are too few, and workers, maybe 20 per cent, are underemployed due to virus-caused declines in demand and Chinese inputs,” he said.

Since the outbreak began at the end of last year, Vietnam has introduced a number of measures to help contain its spread, including extending the Lunar New Year school holiday in dozens of cities and halting trade with China at many of its northern border stations.

Some checkpoints reopened for a limited period on Thursday, though all truck drivers entering the country from China are now required to wear gloves and masks, and are prohibited from leaving their cabs at any time, according to Vietnamese media reports.

State-owned Vietnam Railways was reported as saying its revenue in the first 19 days of February fell by about US$2.8 million from the equivalent period of last year, partly as a result of having to pay refunds on almost 40,000 unused tickets.

Tens of thousands of Chinese migrant workers were quarantined on their return to Vietnam following the Lunar New Year holiday, including about 10,000 in the town of Son Loi close to the China border. Although checkpoints have now reopened, businesses continue to face difficulties.

At a shoe factory in Thanh Hoa province, nearly 12,000 workers were told to take two days’ leave last week as the company had no raw material for them to work with, local media reported.

Also, thousands of workers at garment factories across Vietnam went on strike over fears their Chinese workmates had brought Covid-19 back with them after the holiday. In a bid to reassure them, a state-run union provided free face masks and information on how to protect against infection.

Joe Buckley, a specialist in Southeast Asian labour and development issues at SOAS University of London, said many clothing and footwear manufacturers had been hard hit by the coronavirus epidemic.

“One impact on production is that enterprises are finding it hard to source such materials,” he said. “Some, such as Samsung, are flying in parts to get around the restrictions, but others are simply running out of materials.”

The deadly outbreak, which began in the central China city of Wuhan in December, has had a significant effect on the global supply chain, with many foreign businesses complaining of a shortage of supplies due to the disruption to production in the world’s second-largest economy. Vietnam relies on China for about 30 per cent of its imports.

Vietnam’s Prime Minister Nguyen Xuan Phuc said at the start of February that economic growth in the first three months of 2020 was likely be one percentage point below the government’s target of 6.8 per cent for the period.

Papua New Guinea: Lessons Learned from Working in Asia-Pacific’s toughest country

Check your budget plans before doing projects in Papua New Guinea (PNG). Did you know it costs about US$8 for 3-minute phone call to PNG? So use Skype: Yet even that costs US$1 per minute. It was quite a problem for us implementing a survey of 240 PNG-based enterprises, doing the appointment calls from overseas. We became a skype “frequent flyer”, spending over US$2,000. That was just one of many cost surprises (thanks, it would seem, to Australian cartels dominating the economy).

Nevertheless, we pushed through and did a sterling job for our client, the American consulting firm, DAI (we started a similar survey for them in Thailand a few months later). We knew it was a tough place, so had one of our staff, Callum Furness, was based there for two months; with Chief Economist, Adam McCarty, joining for the inception period. Normally we avoid such intensive in-country staff inputs for enterprise surveys – but we knew that PNG needed a more hands-on approach – and it worked. Yet everything was more expensive than we planned: Taxis, accommodation, car hire, photocopying – even sending local SMS messages!

A pleasant surprise was the availability of very capable locals willing and able to join our survey team. We advertised electronically some weeks before arriving, and then did interviews of several days. The time and effort for enumerator selection was necessary (only 1-in-5 interviewed were chosen). The result: An impressive team of enumerators.

A final lesson learnt: Be sympathetic to “Melanesian time” and enjoy some local beers with your team and all problems get solved!

Impact Investing : Speaking a Common Language is Difficult

After a busy week at the AVPN 2019 Conference, I have learnt a hard lesson: while the 1300 who came to Singapore stated a commitment to achieving social impact, the majority of them are not properly measuring it. Let’s be honest: as impact evaluators, we at Mekong Economics were expecting much more from impact investors. At least, we would have liked to see more curiosity to explore the ways to maximize and evaluate impact, rather than just talking about financial returns on investment. On the flip side, we also met many people that didn’t care about financial returns at all – they were committed to change the world at whatever cost, and willing to fund initiatives in ways that looked more like charity-giving than what we would consider a proper ‘investment’.

But why is that the case? We found that the issue lays on the divergence between the people that came to Suntec. In just one day, we shook hands with bankers in suits, more casually-dressed philanthropists and entrepreneurs in jeans. While this diversity aims to break boundaries across sectors and facilitate collaboration, all of these actors were speaking a different language. In one conference hall you could listen to a philanthropist talking about impact in terms of the number of lives he changed in 2018, and in the other room, you had impact investors and asset managers talking about impact in terms of the financial returns achieved by the social enterprises they supported.

Impact is indeed, a very dangerous word: it is very vague, and for this reason it can be molded to one’s priorities and objectives. Is a social enterprise ‘impactful enough’ if it can scale its model and make a profit? Is a philanthropic fund achieving ‘enough impact’ if its project associates can take a picture of some children smiling in front of their newly-built school? Or is an NGO implementing an education program in a rural village somewhere in the world ‘impactful enough’ if it can show that more kids passed the national exam and got accepted into University?

Business-people and entrepreneurs found their common language in financial statements; profit is the widely recognized measure of success in the private sector. The problem arises when public sector, NGOs and philanthropists enter the room; for them, making a profit doesn’t necessarily mean achieving success. Donors are used to extend what is called ‘concessional credit’ – money given at zero or quasi-zero interest rates – just for the sake of implementing that project that someone believes will change the world. At the same time, this mindset leads to many failures, and many times results in projects that go against the definition of sustainability – which is, that a solution lasts[1].

For us, impact evaluation is about identifying the counterfactual. Very simply put, we strive to identify ‘who’ and ‘what’ is behind a social result. We find – and then strip away – all the other possible causes that could have brought that initiative to achieve that social outcome, to see if the outcome is still there. If it is, then we know – with a certain level of certainty – that withoutthe initiative that change wouldn’t have happened in the first place. There are many different ways of measuring a counterfactual, and we are pushing to create and teach a ‘common language’ at AVPN; one that is made of indicators that are understandable, flexible and efficient, but that doesn’t sacrifice a level rigor. The Impact Management Project and IRIS+ are good examples of these efforts, and we should continue to push in this direction – thinking not only as investors, but also as enterprises[2].

However, a language doesn’t exist until a community uses it. Before his keynote speech at Day 1 of the conference, Group Chairman of Standard Chartered Bank José Viñals took off his tie as a symbolic gesture to get ‘closer’ to the audience. It was certainly nice, but I would argue that it is just the beginning of what is needed to breaking boundaries between the worlds of bankers and philanthropists. On one side, bankers will never get closer to sustainability if they don’t start listening, understanding and speaking the language of philanthropists, donors and NGOs. On the other side, NGOs, donors and philanthropists will never be able to achieve scalable and sustainable impact if they don’t listen to bankers and learn from the way they think.

[1]David Damberger, an engineer working in Africa, gave a very interesting TED Talk on the topic: https://www.ted.com/talks/david_damberger_what_happens_when_an_ngo_admits_failure?language=en

[2]Lean Data is a good method utilized by Acumen to help social entrepreneurs define their impact. For more information, please have a look at their dedicated webpage: https://acumen.org/lean-data/

MKE at AVPN Singapore

On June 27th our Chief Economist Adam McCarty will present at the panel discussion ‘Building global consensus on impact measurement and management’. In this panel, leading experts from the field of Monitoring & Evaluation and impact investing will discuss the challenges and latest developments associated with creating and implementing accurate and comparable impact management practices.

While for private sector actors is easier to design a common framework for measuring financial performance, the variety of impact dimensions as well as the difficulty in gathering and interpreting data makes it challenging to define common practices in impact investing.

But that’s not an excuse to avoid measuring impact.

Hence, rather than engaging in discussions on what to best measure (as dimensions of impact are very different), practitioners should focus on how to best measure impact. Common practices need to be designed in a way so they can be used by everyone, and thus they need to be flexible and easy to understand. Companies and investors might find difficult to approach complex and costly impact measurement methodologies such as Randomized Control Trials (RCTs), despite they represent the ‘Gold Standard’ in impact measurement. At the same time, too simple techniques might fail to measure ‘additionality’, which is what the business or the program ‘adds’ to the environment where it operates, creating impact.

We have condensed our views on how different stakeholders measure and report impact in the table below. What is clear is that within the industry there is an increasing consensus on three fundamentals of good impact measurement and management:

• Both positive and negative impact need to be measured and reported (“happy stories” are not going to cut it)
• Understanding additionality is key
• Impact data needs to be understood in context (eg. “Jobs created” is not enough, you need context on the jobs created to understand if it’s impactful or not)

The Asian Venture Philanthropy Network (AVPN) is a unique funders’ network based in Singapore committed to building a vibrant and high impact philanthropy and social investment community across Asia. As an advocate, capacity builder, and platform that cuts across private, public and social sectors, AVPN embraces all types of engagement to improve the effectiveness of members across the Asia Pacific region.