Government's 1.5-million enterprises target ambitious but feasible: Expert

Economist Nguyen Tri Hieu shared his view with Hanoitimes on the government plan to have 1.5 million enterprises by 2025, which would represent a surge of 85% from the current figure of 810,000.

Economist Nguyen Tri Hieu.

Recently, the government has tasked the Ministry of Planning and Investment with building a plan to achieve the target of having up to 1.5 million businesses by 2025. What is your view of this goal?

Such a goal is very ambitious, given the fact that Vietnam has failed to realize the 1-million enterprises goal by 2020. However, it is worth mentioning that besides the current 810,000 operational enterprises, the country has over five million business households.

They are the potential candidate to become small enterprises, because if 10% of them are formalized into enterprises, we would have an addition of 500,000 enterprises in the next five years.

With 100,000 businesses households registering as enterprises every year, the task would become more feasible.

What steps are required to convince them that formalizing into enterprises is a right move?

Firstly, conditions for formalization of business households should be more favorable and simpler, especially in the legal definition of enterprise, the number of employees, working capital, and the system of corporate governance. All of them should ensure smooth and convenient transformation for business households into enterprises.

Secondly, the government should provide more tax incentives for business-household-turned enterprises.

At the moment, business households with revenue of over VND100 million (US$4,346) are only required to pay personal income and value added taxes, while enterprises are obliged to a wide range of taxes. As a result, tax incentives that are tailor made for those turning into enterprises could reduce their “resistance” against such move.

Thirdly, the government should raise public awareness about the benefits of operating as an enterprise. For many years, many business households still view the formalization into enterprises as a bad decision, as being business households, they can keep operating at a small scale of just few employees or giving out quick decision.

However, in case of an enterprise, there would be a totally different organizational structure and accounting system. Enterprises would operate at higher scale and be more professional, but they are more legally-bounded.

Such issue, unfortunately, is restricting the overall economic development. An economy with only 810,000 enterprises and over five million business households would represent a low development level. For Vietnamese economy to advance to the next level, at least 500,000 business households should be formalized in the next five years.

The Covid-19 pandemic last year caused severe consequences to the local economy, including a surge of 62.2% year-on-year in the number of enterprises temporarily suspending operation or 46,600. What is your recommendation to address the problem in the coming time?

I think the utmost priority for enterprises at the moment is working capital, which is vital for them to keep their businesses running. Otherwise, many would be forced to leave the market in the next three to six months.

A credit aid package worth VND300 trillion (US$12.87 billion) that was rolled out from last year has not been really effective, as only a small part of the business community get access to this package.

The government should come up with a specific rescue plan targeting small and medium enterprises (SMEs). I would suggest the State Bank of Vietnam (SBV) [the country’s central bank] to set up a loan syndication worth VND300 trillion with the participation of all commercial banks.

While most SMEs looking for funds are affected by the pandemic with difficult financial situation, the banks would face high risks of rising bad debts by providing unsecured loans. So it is necessary for the government to launch a national credit guarantee fund worth VND30 trillion (US$1.3 billion) to share the risks with banks in case borrowers default on their loans.

Enterprises qualified for syndicated loans would be entitled to preferential interest rates from 3-5% per year and in a duration of five years. Moreover, they should be allowed for having a one-year grace period for principal and interest payments.

Thank you for your time!