Economic Sector

Last updated: Wednesday, April 24, 2019


Household Economy: Still Immature

Posted: Thursday, October 18, 2018

To increase both the number and quality of business development as per Resolution 35/NQ-CP of the Government dated May 16, 2016, many solutions have been adopted and implemented. Wherein, the transformation of a household business into a corporate entity is considered one important solution. However, outcomes have not come as expected.

The latest survey released by the General Statistics Office (GSO) on September 19 shows that household, cooperative and individual businesses currently reach over 5.1 million, including 4.6 million with fixed operating locations and 0.6 million with unfixed locations. About 2.3 per cent of 5.1 million business households eligible to become corporate entities have high revenue and employ many skilled and trained workers. Many studies showed that, despite many advantages, household businesses are exposing certain weaknesses that may drag on rapid development.

In spite of knowing that when transforming into enterprises, household businesses will have more conditions to access capital or make better use of other resources. But, this transition has been encountering difficulties and challenges stemmed from mechanisms and policies faced by the private sector.

Since the introduction of Resolution 10-NQ/TW on developing the private sector as an important engine of the socialist market economy, the private sector has many barriers removed for development but it is still facing numerous challenges in the course of development. These barriers are peculiar to the private sector, according to a study conducted by the National Economics University. Specifically, the probability of borrowing applications accepted for disbursement will be reduced by 23.7 - 26 percentage points if applicants are small and medium-sized enterprises (SMEs) but it will rise by 2.3 - 2.8 percentage points if they are State-owned enterprises (SOEs). Survey data show that the private sector must spend more time for these procedures than SOEs. As many as 34.1 per cent of private enterprises spend over 20 per cent of their time in a month to handle tax and customs procedures while SOEs need just 14.7 per cent.

In addition to these particular hardships, the private sector has faced similar challenges as other domestic firms such as personnel quality, rising salary and insurance costs and logistics costs.
In reality, the current policy only focuses on supporting and encouraging business start-ups. Therefore, transforming into corporate entities will cause household businesses to open accounting books, hire accountants and make financial statements. This means that, when having business establishment certificates, administrative procedures are more complicated, including insurance, union, tax, labour, fire and others that will result in higher costs to do business.

Transforming household businesses into private enterprises has been discussed repeatedly. According to experts, to do this, support policies must be first of all comprehensive and consistent in the long run and the business climate must be reformed, with SMEs taken into account. This process cannot use administrative measures but use consultative and supportive measures. Economic leverage is encouraged for use in this case rather than administrative orders.

To support and encourage the transformation, a simple accounting and bookkeeping mechanism should be introduced for small businesses and household businesses converted into enterprises to ensure right tax collection and no harassment to them.

The Law on SME Support, which came into effect in early 2018, is highly valued when it comes to supporting the conversion of household businesses into enterprises. However, to date, some contents related to this preferential policy, especially tax policies, has not been specifically guided. This is clearly an obstacle to the transition from economic households to private enterprises.

The transformation policy is good for both transformed entities and the economy. It helps boost the government to implement measures to improve the business environment and facilitate administrative reform. This enables enterprises to recognise greater business opportunities more easily. Legal compliance forces them to be more transparent, more manageable.

Even so, Tran Du Lich, member of the Prime Minister’s Economic Advisory Group, recommends not chasing after the target number, but creating an environment for them to grow. Let household businesses grow to become private enterprises as usual.

Nguyen Thanh

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