The shoe factory has been operating in Vietnam for 27 years. If the minimum wage is raised every year, the shoe factory may have to end its local production line in six years. Amid the epidemic, this is the first time in two years that Vietnam has raised the minimum wage to US$200 per month.
The cost of living in Vietnam is rising. In order to help low-wage workers, the local government announced that it will raise the minimum wage by 6%.
As early as June 12, Vietnam had officially promulgated a new decree to increase the minimum wage and hourly minimum wage standards for workers.
On the same day, Vietnamese Prime Minister Pham Minh Zheng communicated with thousands of workers across the country through online and offline means. During this period, he officially announced that the national minimum wage would be raised from July 1, and there was a warm applause at the scene.
This is the first time that Vietnam has raised the minimum wage standard after the outbreak of the new crown epidemic. Many parties have been engaged in a long-term game before this.
Wages have risen too fast. This shoe factory with 16,000 people
May have to leave Vietnam
Recently, according to media reports: This Taiwanese company has several shoe factories in Vietnam, employing 16,000 workers and manufacturing shoes for the world’s top shoe brands. After the minimum wage was raised, employee costs increased by one percentage point, resulting in an increase in employee expenses, accounting for about 20% of total production costs.
Lin Minfang, deputy general manager of Yongan Shoemei Co., Ltd., said: “We still have a distance, that is, a safe distance, because 25% is what you cannot quote, which is the cross line of death, so we have about 4% left.”
The shoe factory has been operating in Vietnam for 27 years. If the minimum wage is raised every year, the shoe factory may have to end its local production lines in six years. Amid the epidemic, this is the first time in two years that Vietnam has raised the minimum wage to US$200 per month.
Dr. Du Qiongzhi said: “The problem with the minimum wage increase is that it is adjusted in the middle of the year. So for many companies that export through the global supply chain, they have already signed orders with customers, but they do not know that the minimum wage will be adjusted in the middle of the year. There have been adjustments.”
Factories began to be inspected for taxes
Vietnam’s labor and land costs continue to rise
Chen Jiacheng, a practicing accountant in the Vietnam region of KPMG Anhou Jianye Overseas Business Development Center, said that due to the continued increase in foreign investment after the epidemic, labor and land costs in Vietnam have also increased. The impact of the epidemic and the conflict between Ukraine and Russia have also pushed up international freight rates and raw material prices.
Many Taiwanese businessmen have reported that the recent shortage of workers is no longer as serious as it was at the beginning of the year. The main reason is that many large or low-priced products can no longer bear the rising shipping costs. Therefore, many American brands have quietly transferred orders to South American Suppliers.
However, as foreign investment continues to increase, Vietnam is bound to start a war for people again, which will once again push up Vietnam’s salary costs. This will gradually expose the tax risks of many Taiwanese factory employees who only receive part of their salary in Vietnam.
Chen Jiacheng said that recently, when many Taiwanese businessmen in Vietnam faced tax bureau inspections, they were required to pay back taxes because the salaries of foreign employees were lower than the market rate. The inspections lasted for three years, and the fines and fines were not small.
He said that personal income in Vietnam is subject to global income tax. As long as you live in Vietnam for more than 183 days, you are a Vietnamese tax resident, and the company has withholding and reporting obligations.
According to the current tax collection practices in Vietnam, if the salary declared by the company for its employees is not consistent with the market conditions, the tax bureau can calculate the salary according to the market conditions of the employee’s position and require the company to pay back personal income tax. At the same time, because the underreported individual Salary is not paid by the company and cannot be classified as a business expense.
In addition, for the salary expenses paid by Taiwanese companies to expatriate employees, the tax bureau will also argue that the salary expenses have nothing to do with the operations of the Taiwanese company and cannot report salary expenses, or that the Taiwanese company should calculate the labor income of the Vietnamese company and require the Taiwanese company to compensate Tax. It was originally a well-intentioned arrangement for employees, but it resulted in companies and individuals in both places being exposed to tax risks, resulting in the unfavorable situation of double taxation.
As foreign capital continues to increase investment, the wages of middle- and high-level talents in Vietnam have gradually caught up with Taiwan, and the salary levels of some positions have even surpassed Taiwan.
Further reading:
In the second half of the year, Vietnamese factories also began to lack orders.
Recently (July 30), according to Vietnamese media vnexpress:
After six months of strong recovery in the first half of the year, many factories began to run out of orders in the second half of the year and had to shorten production times, stop recruitment, and reduce labor force.
The second half of the year is also a difficult period for textile, footwear and clothing workers and companies to reduce orders. Some factories have had to arrange for workers to be furloughed on a rotating basis.
Vietnam Textile and Garment Association (VMs. Tran Thi Tuyet Mai, deputy secretary-general of ITAS, said that at the beginning of this year, companies received many orders but lacked workers. Many factories have to find places to outsource less.
Orders will be lost from September to October
In the second quarter, the Russia-Ukraine war broke out, oil prices rose, and the epidemic… had an impact on people’s global consumption habits. The purchasing power of fashion apparel products has dropped sharply, and inventory cannot be sold. The brand does not sign new orders. Some factories are running out of orders, forcing them to recalculate appropriate labor plans, such as giving workers Saturdays off.
Mr Nguyen Huu Tuan, human resources director of Tanh Cong Textile – Investment – Trade Joint Stock Company in Tan Binh Industrial Park (Tan Phu District), said the factory is still operating normally but orders will be lost by September to October.
According to the plan, the company will arrange for workers to take vacation at the same time. In conjunction with the National Day holiday, the factory will suspend production for 8 days. The company then arranges for workers to take Saturday off as appropriate to reduce overtime work. Workers’ incomes are expected to fall by 10-20%.
Mr. Duan, who has more than 30 years of experience in the textile industry, said that the second half of this year will be a good time to “purify” the industry. If financial companies are weak and have no orders, they will find it difficult to survive due to high costs, and they will have to reduce production or go bankrupt. There is a shortage of workers and unemployment is easily visible.
In Thanh Cong, businesses, employees and shareholders must share the difficulties and accept reduced profits. However, factories still maintain many supportive policies, allowing people to wait for recovery. In early July, the company raised wages by 6%, the price of gasoline was raised from VND10,000 to VND15,000 per day, and meal expenses were also increased by 12%…
Not busy in peak season
The factory has a lot of inventory but no customers
Mr. Tran Viet Anh, Vice Chairman of the Ho Chi Minh City Business Association (HUBA), said that not only electronics, textiles, shoes and clothing, but also wood and steel production… are also facing many difficulties due to the purchasing power of key markets. Usually, starting in June, the sales season starts with Mid-Autumn Festival, the new school year, Christmas… But this year things are quite quiet.
“Many factories have a lot of inventory, reduced prices, but no buyers,” Mr. Viet Anh said, adding that difficulties from the pandemic, world wars, inflation… are slowly seeping in. Many businesses have had to rearrange production activities and reduce working hours. The means of production in some industries have begun to cool down, and many powerful financial institutions will buy reserves and wait for recovery. The market for this group looks warm, but no new jobs are being created.
According to the person in charge of HUBA, judging from the scale of production, many companies are still short of workers and have stopped hiring. Currently, the factory is mainly reducing overtime and giving annual leave. However, the next one won’t be enough for a full week of 8 hours a day. At the same time, workers are eager to work, working overtime to pay for post-pandemic expenses, prices are rising, and children in the new school year…
“This situation creates problems for businesses in retaining staff,” said Mr. Viet Anh. When income decreases, workers will move to other jobs. Until the market recovers, factories will be left without workers and once again struggling to compete for human resources.
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