VCCI Helps Improve Effectiveness of Household Business

The Vietnam Chamber of Commerce and Industry (VCCI) recently co-operated with the ‘Making Market Work Better for the Poor’ Project organised by the Asian Development Bank, and announced a study on the conversion of individual business household into enterprises in Vietnam. The study aims to help policy makers understand obstacles in the conversion process.

 

There are two similar air-con restaurants, but one operates under a licence for an individual business household and another, the business certificate under the Enterprise Law. This means that one restaurant pays tax on the basis of lump sum for business households, while the other pays tax as an enterprise. Accordingly, the enterprise restaurant has to have transparent accounting books and hire auditors to check their books, but the household restaurant does not.

 

According to the World Bank, Vietnam has around 2.9 million business households, while the number of enterprises is put at 200,000. Talking about the difference in the number of business households and enterprises, Pham Chi Lan, member of the Prime Minister’s Research Commission, said that due to poor development level of the market, the number of official enterprises cannot be as high as the number of unofficial enterprises.

 

Business households in Vietnam are often run by individuals or households, doing business in certain places with a small number of employees. These business households are not legal entities and they have to be responsible before the law for their business activities with all of their assets.

 

However, many business households have developed on a large scale with capital reaching billions of Vietnam dong and their business activities are not in an individual place, but in many places. For such a development, in each business place, the owner of the business applies for a new business certificate under the name of another person. The number of workers increases. Due to their fear of tax payment, they do not want to change their business form, from business households into enterprises.

There is a big gap between Vietnamese business households and foreign enterprises, said Alan Johnson from the Project on Making Market Work better for the Poor, the Asian Development Bank, in Vietnam, at a seminar to announce the study. According to Johnson, while foreign enterprises are large in size with modern technology and scientific management, Vietnamese business households are often small and hardly apply international standards into their production and business activities.

In the first drafts of the Unified Enterprise Law, there was an article about the conversion of business households into enterprises, operating under the Enterprise Law if they have more than ten workers and operate in more than one place. However, after gathering inputs and comments from enterprises, the drafting board removed the article because business households are not subject to the Enterprise Law.

 

The issue is whether these business households should be converted instantly into enterprises to create a fair playground for enterprises. There are two opinions about the issue. The first opinion states that the State management should be promoted for business households. Accordingly, they should be converted into enterprises, operating under the Enterprise Law. This will help not only prevent tax evasion but also facilitate the development of business households with easier trademark promotion and easier conditions for making transactions with other enterprises.

 

The second opinion states that even major economies in the world cannot completely remove business households. The existence of business households is necessary, in particular for Vietnam as an agricultural economy with small-sized enterprises and poor management. However, the opinion states that authorised agencies should stipulate concrete norms in terms of workers, capital and business places, for a certain scale on which business households will have to be converted into enterprises.

 

Nguyen Van Dang, deputy head of the Central Economic Commission, said that in the coming time, the study on the conversion of business households into enterprises should expand under a theme ‘development path of business households in Vietnam.’ Accordingly, the study, as Dang said, should take an in-depth look at constraints and difficulties of business households with time-life statistic figures to show changes and forecast the development of the economic sector, clarifying profitable business forms.

 

At present, I think that organisations should concentrate on clarifying the role of the unofficial economic sector instead of accelerating the conversion of the sector, as it is not an unhealthy sector of the economy.

 

I think that conditions for the sector to be made official should be further clarified and in the short term, business households should be encouraged to develop and they should be guided in a proper order. There are five factors to which attention should be given. These include tighter legal regulations for the development of the unofficial sector, the development of markets and cost reduction to encourage people to get involved in the official sector, the development of human resources in governance and profession (accounting, finance and technology) as well as administrative reform and the capability building of localities.

 

Vietnam considers business households substitutes for enterprises. At present, most businesses operating in craft villages are household-run on a basis of generation transfer. Therefore, there should be further studies about business households which develop into enterprises. I think that research and surveys should be conducted from the formation of business households and the formation of enterprises. This will show the boundary and norms for a business household to develop into an enterprise. Also, this will show the obstacles to the conversion of business households into enterprises. On this basis, authorised agencies will be able to convert activities of business households.

 

At present, business households lack information about the business environment and management knowledge, as well as relation with intermediary service suppliers, let alone the Government’s support. These are obstacles to the conversion of business households into enterprises.

 

In my opinion, the business household sector exists as a launch pad for future enterprises. At present, they do not have to declare tax and hire auditors to check their revenues and expenditures, which is applied for enterprises without accounting systems. When they are converted into enterprises they will have to cover the costs. Therefore, when their conversion is studied, it will be necessary to study whether additional costs are suitable with their scale and activities or not.

With low levels of income of people and workers in the unofficial sector, business households should not be converted into enterprises.

Vietnam should develop concrete norms for the conversion of business households into enterprises with further careful studies.