According to an estimate from the Ministry of Finance (MoF), 20 per cent of enterprises have seen their land rental costs increase sharply this year after the implementation of Decree No 121. Taking effect on March 1, land rentals for State land in the decree are set at 1.5-3 per cent of land use right transfer prices in the market.

Decree No 142/2005 previously guided the setting of land rentals in accordance with land prices announced annually by local people’s committees. Circular No 94, guiding the implementation of Decree 121, came into effect on August 15.

At a conference organised by the Vietnam Chamber of Commerce and Industry (VCCI) in July to discuss the difficulties stemming from Decree No 121, Ms Truong Thuy Nga, Director of the Khuyen Luong Port Co., Ltd., said she was very anxious about her company’s future. “In 2011 the company’s land rentals are more than VND4 billion ($2 million); four times higher than in 2010,” she said. “Significant changes like this upset business plans and affect workers’ lives.” If a business also finds itself subject to fines for late payment, bankrupt becomes a genuine possibility.  

Many of the 200 enterprises attending the conference said their land rentals had increased by a significant degree compared with what they were paying last year. The Halong Canned Food JSC must pay nearly VND7 billion ($3.5 million) this year, or 10.2 times higher than in the 2008-2010 period, and the Hong An Equipment Co. Ltd. are paying 18 times higher than last year. 

Some enterprises take issue with the fact that the decree calculates land rentals based on location rather than business field. According to Mr Dao Xuan Binh, Chairman of the Le Chan District Business Association in Hai Phong city, the 30 enterprises at the Vinh Niem Industrial Zone are not classified as manufacturing, service or commercial enterprises under the decree, and so pay identical land rentals.

“Enterprises processing footwear, for example, generally earn lower profits, so it is unreasonable for them to be subject to the same land rental as a service enterprise,” he said. Of a similar mind, a representative from the Hai Phong Road Transport Association proposed the government consider applying land rental rates based on business field.

The decree is applicable only to domestic enterprises, with FIEs paying their land rental for 50 years at one time at a price determined at the time the lease is signed. Mr To Ngoc Thach, Director of Hong An Equipment Co., Ltd., told the conference that his company’s land rental costs were 215 per cent higher than an FIE in the same area. “A South Korean enterprise next to us pays just $1.60 per square metre each year,” he added. “If land prices keep rising we will continue to have to pay a lot more than FIEs.” 

Mr Pham Dinh Cuong, MoF’s Director of Public Property Administration, said that land rentals have long been subsidised by State. “Over 300,000 enterprises paid a total of less than VND3,000 billion ($150 million) each year previously,” he said. “Many enterprises use land wastefully and some sub-lease it for a profit.” He added that Decree No 121 would force businesses to use land for the proper purpose.

In response to complaints from some businesses that they are paying 10 or even 30 times higher than in 2010, Mr Cuong explained that there were cases in the past where rents remained unchanged for 20 years, but in the new Decree they will be adjusted every five years. “The Decree make FIEs land rentals lower than for domestic enterprises,” he said. “Domestic enterprises have to pay compensation. To attract FIEs we need such incentives.” Under the decree, however, the method for calculating land rentals for domestic and foreign enterprises is the same.

Leaders at MoF are considering submitting a plan to the government on addressing difficulties for some enterprises associated with implementing the Decree. “Under this plan, land rentals are expected to fall by 30-50 per cent for manufacturing enterprises this year and next year,” Mr Cuong said. “Land rentals for service enterprises and commercial enterprises, though, will remain unchanged.”