Encouraging household businesses to switch into enterprises

Monday, 2017-09-25 11:36:23
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NDO - It is the people’s inalienable right to choose a business model, therefore the government can only encourage, and cannot use administrative orders to force, household businesses to convert into enterprises, said To Hoai Nam, Vice Chairman of the Vietnam Association of Small and Medium-Sized Enterprises (VINASME).

Nam granted an interview with Nhan Dan on the measures required to expedite this conversion in an effective way.

Q: What is the reason behind the slow conversion from household businesses into enterprises?

A: The main reasons lie in the household businesses themselves who are afraid to grow larger. We can divide household businesses into three groups. The first group includes those who do not want and do not have resources to switch into enterprises.

The second group includes those who want to maintain their business in its current form in order to avoid tax obligations. Household businesses have to deal with just four types of financial records, while enterprises have to handle up to more than 30 types. Having to comply with these regulations alone is enough to make many household businesses resistant to converting into enterprises.

Moreover, household businesses only have to pay a lump-sum tax which is calculated based on perceptions or negotiations between them and the tax officers. This has created a large loophole, helping household businesses to easily evade tax obligations. Among this group, many are even larger than an SME but are paying little tax.

The third group, which is also the largest, includes those who feel intimidated by the administrative procedures facing them as an enterprise. They have thought of establishing enterprises but remain reluctant due to a fear of being bullied.

Q: What are the key measures to be included in the scheme to support household businesses as they convert into enterprises?

A: First I would like to note a few advantages of switching to enterprises, including easier access to credit and other support, the ability to operate nationwide and abroad, something that household businesses are not allowed to do, and the ability to operate in conditional sectors.

Concerning the measures, it is necessary to make household businesses the same size as SMEs make the conversion, not to change their names, but to fulfil their tax obligations. My stance is that the government can only encourage them and cannot force them through administrative orders, except for the rule that, if a household business is the same size as an enterprise, it must fulfil its obligations like an enterprise.

This cannot be done with hollow calls but requires substantive actions. One of the key measures is to ensure that local tax collectors comply with the law. For example, if we want household businesses to fulfil their obligations like an enterprise, it is necessary to prevent any tax negotiations. This is easier said than done, especially as household businesses are usually the ones who recommend negotiations first.

The second measure is to push through administrative reform in order to allay public anxiety when dealing with public service agencies. And finally, continuous assistance should be given before and after the conversion, such as complimentary conversion, training on how to open accounting books or tax support.

Q: Can you share a little about VINASME’s cooperation with Thai Binh province in implementing a number of measures to accelerate the conversion?

A: Thai Binh currently has just over 5,400 enterprises, while having nearly 125,000 small household businesses. The provincial leadership has determined to raise the number of enterprises to 9,000 by 2020. This is an important prerequisite for the cooperation between VINASME and Thai Binh province. It should be understood that household businesses are involved in a lot of unofficial activities which are not visible on paper. For now, we are collecting data to make an accurate analysis. From first-hand experience in Thai Binh, we hope that effective measures will be included in the scheme to be submitted to the prime minister and applied throughout the country.

Thank you very much.