Restructuring plan must mobilize household businesses

(SGI) - According to the Resolution on the Economic Restructuring Plan for the period 2021 to 2025, Vietnam aims to have about 1.5 million enterprises by the end of 2025. To achieve this goal, about 160,000 new businesses will need to be set up each year. 
Illustrative photo.
Illustrative photo.

However, with an annual dissolution rate of 60%, the number of newly established enterprises each year will be at least 400,000, nearly four times the current number of registered enterprises annually. This will prove to be a challenging task in the current context.

Transformation needed

In order to achieve the goal and meet the target of establishing two million enterprises by 2030 it will be necessary to mobilize the household business sector and transform it into an organized enterprise. But this transformation and participation of the household business sector needs to be promoted by breakthrough legal reform measures that are in line with market rules, international practices, and the quintessential nature and characteristic of an individual household business, rather than have measures and regulations inflicted on them.

Proposals such as transforming household businesses into enterprises under the Law of Enterprises, or the development of a separate law on household businesses are very worrisome because it breaks the structure of the Law of Enterprises and contradicts the current legal system, making the Vietnamese business sector increasingly separate from international practices.

Using administrative orders or forcing household businesses to register under the Law of Enterprises is also ineffective, even damaging the development of the household business sector which currently accounts for more than 30% of GDP. A more correct approach is to create a suitable type of enterprise for individual household businesses so that they can voluntarily register easily, on the basis that they balance themselves on the benefits and costs of registering the switch to this form of business.

The Law of Enterprises needs to make room for individual household businesses to choose for themselves, instead of inflicting compulsory measures. Therefore, reforming private enterprises as stipulated in the Law of Enterprises will be one of the main keys to reforming the household business sector and encouraging them to voluntarily transform into enterprises. This change can be sustainable and better support small household businesses after the transformation. Along with this, reform regulations on accounting, financial reporting, taxation, and social insurance will be suitable for private enterprises. However, these regulations must not become a burden on these businesses after the transition.

International experience shows that the model of household businesses or sole proprietorship of a business, and what Vietnam calls a private enterprise, is popular in many countries. For example, in the European Union (EU), out of 2.3 million enterprises established in 2012, 1.6 million enterprises or around 70% were registered as sole proprietorships. This rate is particularly high in France with 92.3%, Poland with 86.9%, the Netherlands with 86.4%, and the Czech Republic with 86.1%. In Southeast Asia, out of 907,065 enterprises registered in Malaysia, 554,900 enterprises or 61.2% are private enterprises.

Favorable conditions

In order to create favorable conditions for private enterprises to officially participate in the business community under the common Law of Enterprises, the first thing to do is to change the term private enterprise to an individual enterprise or a one-owner enterprise, in order to better reflect the legal nature of this type of enterprise. Next, it is necessary to dedicate a separate chapter in the Law of Enterprises for individual enterprises or one-owner enterprises according to new regulations.

This chapter will specify clearly that this business sector will apply accounting and financial reporting according to simple principles, low costs, and other legal regulations, in accordance with the nature of a one-owner business, instead of having to comply with all the same regulations as other companies today. This will help reduce the cost of compliance with legal regulations of individual businesses or one-owner enterprises to nearly the level of individual household businesses today.

At the same time, the Law of Enterprises will also clearly stipulate that individual enterprises or one-owner enterprises will be registered at the district level, instead of at the business registration office at the provincial and city level as at present, at the same level as where individual household businesses are currently registered. The Ministry of Planning and Investment will decentralize functions and tasks, as well as the online business management system to more than 710 districts nationwide, to carry out business registration procedures for individual enterprises or a one-owner enterprise, reducing travel and business registration costs when people and household businesses register under this form of enterprise.

Finally, within five years after the above regulations take effect, people can choose to register their establishment in the form of an individual household business as they are doing now, or in the form of an individual enterprise or a one-owner enterprise under the new regulations. Existing individual household businesses are not required to re-register or convert into enterprises, except for large and tax-risk household businesses. After five years, there will only be the form of an individual business or a one-owner enterprise for people to choose when registering a business in the form of a one-owner or self-employed business.

These changes will help us get closer to the dream of establishing 1.5 million businesses and more that 2 million businesses in the future. More importantly, it will contribute to supporting the process of formalization and improving the efficiency of the individual household business sector with measures that are suitable for international practices and carry the unique characteristics of household businesses in Vietnam.