Vietnam to encourage informal sector to pay tax

According to Luu Bich Ho, former head of the Research Institute for Development Strategies, the value of the informal economic sector is equal to roughly 30% of GDP. 

He said it is possible to measure the sector, but the accuracy of the figures and the purpose of the calculations are in doubt. 

“We can only collect tax on 5% of the 30%. This is because we still cannot observe and control the economic sector,” Ho said, admitting that measuring and controlling the sector is a difficult task.

Asked about the factors which led to the increase in the size of the informal sector in Vietnam, Ho said there are many loopholes in laws.

Under current regulations, all institutions and establishments must set up businesses and file registration with agencies when they have more than 10 workers. But in reality, many of them don’t.

This explains why business households, though developing well, still cannot grow into businesses.

An analyst commented that the business establishments run by households are not under the control of central agencies and are ‘protected’ by local authorities. The protection allows business households to evade tax.

“We still cannot prove this and quantify it, but researchers believe this exists,” he said, adding that to be able to control the informal sector, it is necessary to strengthen the fight against corruption at local authorities. 

If the informal sector is ‘observable’ and the size of the sector can be measured, the value generated by the sector can be counted when calculating the nation’s GDP. If so, the current public debt would decrease from 64% to 61-62%.

"To secure public debt, the economy needs to grow healthily, transparently, efficiently and the state needs to collect tax from business activities,” Ho said.

“In other words, the government needs to take action so that the size of the informal sector decreases and becomes normal and pays tax,” he added.

Meanwhile, Pham Chi Lan, an economist, commented that if counting the informal economic sector when calculating GDP, the public debt problem ‘may get even worse’.

Lan agrees that the government needs to apply reasonable solutions to encourage the members of the informal sector to join the formal economic sector. 

Economists continue to argue about the size of the informal economic sector. While some economists say it is about 30% of GDP, the General Statistics Office disagrees.