VN looks to turn home firms into enterprises

Wednesday, Jun 28, 2017 09:15

Workers handle handmade leather shoes in Hai Duong Province. - VNA Photo Vu Sinh

In order to transform household businesses into enterprises, it is necessary to use “economic levers” rather than “administrative orders”, deputy director of the Central Institute for Economic Management (CIEM) Phan Duc Hieu said in a Ha Noi-based conference on Tuesday.

The conference, organised by Viet Nam Chamber of Commerce and Industry (VCCI) in cooperation with Bank for Investment and Development of Viet Nam (BIDV), drew the participation of nearly 100 representatives from State management agencies, banks, industry associations, households business and enterprises. It was designed to discuss the current situation and solutions for converting household businesses to firms.

In the past few years, business households have grown significantly in volume, making tremendous contributions to job creation and service provision to the economy.

This sector’s important role is increasingly appreciated by the Government, agencies and the society, especially for the development of the private sector in Viet Nam.

The Government Resolution 35 / NQ-CP on supporting and developing enterprises has set a target of million operating enterprises in the country by 2020.

Ten years ago, many business households were aware that the transformation into an enterprise could help them to get preferential treatment in loans and labor recruitment.

However, they worried about paying more taxes, fulfilling more obligations to employees or implementing regulations on environment, noise reduction, fire fighting and accounting skills if they became enterprises.

One decade later, the results of a VCCI survey showed that the situation has not changed much; the problems of administrative procedures and taxes are still obstacles for household businesses to become firms.

As a result, in the period of 17 years, there have been 4,671 million household businesses, but only 1.6 million households pay taxes, contributing a total tax revenue of VND 12 trillion (US$529 million).

Do Van Binh, a household producer of worship products, said that households want to transform to enterprises, but they wonder about the cost of tax.

Currently, households pay a fixed licence tax of less than VND1 million per year, and the owners can make accounting records by themselves. However, if households become enterprises, they will have to do more accounting and taxes will also be increased. The regulations also require the enterprise to have a chief accountant, hence generating more personnel in enterprises, Binh added.

To motivate household business to convert to firms, Hieu suggested using economic levers rather than administrative orders, creating a simple business environment suitable for the size and nature of business. When household businesses recognise benefits of being enterprises, they will voluntarily transform.

The Government should prioritise implementing the law on support for Small-and Medium-sized Enterprises (SMEs), amend accounting regulations and appropriate tax payment. Especially, the requirement of having a separate accounting system should be omitted, encouraging business owners to do their own accounting, reducing more than 30 types of accounting documents at present, Hieu emphasized.

Contribution to GDP

Around 100 large household businesses in the country are contributing to a quarter of the country’s gross domestic product (GDP), the Viet Nam Chamber of Commerce and Industry (VCCI) said.

A large section of the private sector comprises family businesses, and their contribution demonstrates their pioneering role in boosting the post-crisis economic recovery and nurtures the entrepreneurial spirit, playing an important role in the development of Viet Nam’s economy, Vu Tien Loc, chairman of VCCI, told the Voice of Viet Nam (VOV) online newspaper.

Speaking at a meeting on “The Professionalisation of Household Businesses” on Saturday, Loc said "family-owned enterprises are an important component that promotes the development of the private sector, helping form private economic groups that lead in many sectors and make a valuable contribution to the nation’s GDP".

“The advantage of Vietnamese household businesses is the trustworthiness and intimacy between family members, but it poses the challenge of balancing this relationship with the principles of corporate governance,” Loc said.

In order to become even more successful, household businesses must work to change their mindsets, improve corporate governance and focus on strengthening human resource management.

Developing Vietnamese firms into some of the world’s largest and most reputable corporations is an important task for both the economy and the household businesses. To achieve it, there must be professional solutions to enhance the competitiveness of these types of businesses, Loc said. — VNS

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