The Ministry of Finance (MoF) recently unveiled a draft decree on capital and financial management requiring State-owned enterprises (SOEs) to remit around 50 percent of after-tax profits towards State budget.

Accordingly, after paying corporate income tax, offsetting losses of previous years and appropriating financial reserve funds, SOEs will have to remit 50 per cent of the remaining profits to the Enterprise Development and Reorganisation Support Fund, managed by the State Capital Investment Corporation (SCIC).

"Like other capital contributors, the State has the right to earn profits from its investments. It will take only half of profits with the remainder to be spent on setting up reward funds and other welfare funds to support employees," said Deputy head of the MoF's Corporate Finance Department Dang Quyet Tien.

Advocating the proposal, economic expert Tran Du Lich, a member of the National Assembly's Economics Committee, said that it was necessary to reclaim SOEs profits for the state budget, especially for large groups getting rich from natural resource exploitation.

Obviously, many SOEs are opposed to the proposal, saying this rule, if approved, could leave them starved of capital for investment given that many banks grant loans based on the financial strength of borrowers.

"In the current economic climate, enterprises should keep all their profits to expand their business and production activities. The after-tax profits to be kept by SOEs still belong to the State and enterprises should use this capital to make more profits which will then increase state budget revenues," said Le Xuan Son, chairman of the members' council of the Vietnam Agricultural Material Corporation.

Another salient point of the draft decree is the requirement that SOEs reduce their investments in non-core business activities from 30 per cent to 15 per cent of their charter capital. SOEs would be allowed to contribute capital to such risky sectors as banking, insurance and securities but, for each sector, they may select only one partner and the total amount of capital invested in these partners must not exceed 10 percent of their equity capital.

In addition, the portion of capital invested by an SOE in a bank, insurance or securities company must not exceed 10 percent of the charter capital of that capital-receiving company./.