Speaking at a seminar on April 27 on “Transforming household businesses into companies” organised by Tuổi Trẻ (Youth) newspaper, Nguyen Thi Cuc, chairwoman of the Vietnam Taxation Consultancy Association and former deputy head of the General Department of Taxation, said, “Household businesses worry about the complex procedures and paying higher taxes and so don’t want to expand into companies.”
There are around five million household businesses in the country with total annual turnover of US$100 billion and nearly eight million employees.
Household businesses are mostly involved in trading and services, especially wholesale and retail business, accommodation, food, and motorbike and car repair.
But since they are designated as household businesses, they face limitations with respect to their development.
“They cannot expand to other districts, can’t do business in several industries, can’t employ more than 10 workers and have limited financial resources,” Phan Duc Hieu of the Central Institute of Economic Management said.
He pointed out they would have certain advantages if they expand into companies like better labour quality, accurate taxes and greater capacity to mobilise financial resources.
“The process of upgrading into an enterprise is very simple, and household businesses can benefit from consultation and incentives from the Government [for upgrading].”
However, when asked in a recent survey by the institute what problems they fear in upgrading, household businesses said they would have to pay higher salaries, social insurance and bonus for employees; adopt a complex accounting system; follow many cumbersome procedures and spend more on management and other fees; undergo regular inspections; and would be unable to negotiate their taxes like they do as household businesses.
To encourage businesses to upgrade, Cuc said the Government should pass a Small and Medium Sized Enterprises Law.
“The Government should show household businesses through a clear legal framework how they can benefit if they expand into enterprises.
“Administrative reforms should be sped up to reduce costs and time for them.
“The Government should support household businesses in terms of technology, market information and product demand if they turn into enterprises.”
Hieu said, “Relevant authorities should review the whole legal system, especially on taxation, conditions for doing business and investment to create the best conditions for small enterprises.”
He also wanted more taxation and accounting agencies set up to support them.
HCM City authorities are encouraging and helping household businesses become companies to achieve the city’s target of registering more than 50,000 enterprises this year and having a total of 500,000 by 2020.