Many Vietnamese businesses prefer to stay ‘invisible’ and ‘tiny’ to avoid the watchful eyes of state management agencies, inspectors and taxation bodies.
Vu Thanh Tu Anh from FETP (Fulbright Economics Teaching Program) believes that Vietnams economy needs a ‘special kind of glue’ – medium-sized enterprises which connect small businesses and large conglomerates.
Anh said medium-sized enterprises only account for 2 percent of total enterprises, and thus cannot link 96 percent of small businesses with the 2 percent of large conglomerates.
According to Anh, this is because an ecosystem favorable for medium enterprises still does not exist.
“If you are a small or tiny business, or if you are in the unofficial economic sector, you won’t have to pay under-the-table fees, or called ‘the fee to lubricate state’s apparatus’, because you are somehow ‘invisible’,” he explained.
“But when you become visible, i.e. you have a business license, you will be growing in the eyes of inspectors, taxation bodies and fire-fighting agencies,” he said.
This means that when businesses grow, they will have to pay many kinds of fees, including underground fees, to run their businesses.
Many Vietnamese businesses prefer to stay ‘invisible’ and ‘tiny’ to avoid the watchful eyes of state management agencies, inspectors and taxation bodies
This is not a serious issue for large companies which have high revenue and profits, but it a big problem for small and medium-sized enterprises.
Anh cited a VCCI (Vietnam Chamber of Commerce and Industry) report as saying that two-thirds of polled businesses said they have to pay 5-10 percent of their revenue on ‘lubrication fees’.
The ‘lubrication fee’ has increased year after year in VCCI’s reports. Phap Luat Viet Nam reported that the proportion of lubrication fee increased from 50 percent in 2013 to 64.5 percent in 2014 and 66 percent in 2015.
In 2016, 66 percent of businesses said they had to pay underground fee regularly, or 12-15 percent higher than in 2008-2013.
Meanwhile, 9-11 percent of polled businesses in 2014-2016 said the fee accounted for more than 10 percent of their total revenue, higher than the 6-8 percent level in the last five-year period.
“How can businesses make profit if they have to pay so much for under-the-table fees? Will they be able to do big business? Will they still be able to nurture the dream of succeeding in Vietnam?” he said. "They don’t find any reason for them to develop, because the more they develop, the more they are ‘squeezed."