Resolution 35 on supporting and developing enterprises to 2020 set the goal to have at least one million active firms. One of the proposed solutions is to encourage household businesses to convert into legally recognised businesses.

According to the General Statistics Office, Vietnam has nearly 5 million household businesses. It is considered a potential way to meet the goal. However, most of the households don't want to expand.

"We'll have to hire an accountant, redo the procedures. It's difficult to expand and we haven’t seen any profits yet. But it'll sure cost us at least VND10m more," said Duong Thuy Dung from Nghe An Province.

A survey by the Vietnam Chamber of Commerce and Industry (VCCI) shows that tax and auditing processes were the main cause for the reluctance. When turning into a firm, owners will have to deal with more complicated tax calculation, inspections, more expenses for labour insurance and other procedures. Several firms had asked to convert back to household businesses after some time.

Currently, the owners only have to pay 1.5% in VAT and personal income taxes. If they become a firm, they will have to pay 20% of taxes and once they employ more staff they would be liable for higher employee insurance contributions.

However, there are a number of household businesses which earn hundreds of billions a year and use the loophole to avoid paying more taxes.

Dau Tuan Anh, Chief Legal Officer at VCCI, said the government must show businesses that they could earn more instead of forcing them to convert. The government also should have support policies for the first three years as an incentive.

dtinews