In 2018, there have been significant changes in the number of business registrations as the number of shutdown and suspended companies climbed up while that of newly established ones grew at a slower pace.
The current reforms do not seem comprehensive enough. Small-scale companies are more likely to be affected by the slow progress of reforming the ‘business environment’. VDSC reports.
The number of newly registered companies was 121,248 and total capital VND 1,234.4 trillion in 11M2018, up 4.5% YoY and 9.1% YoY, respectively. That was lower than 11M2017’s growth of 14.1% YoY and 41.9% YoY. The wholesale and retail sale sector accounted for 35% of total new registrations, followed by construction, manufacturing and real estate.
Related topic: Company registration service in Vietnam
Overall, that has been the trend since 2014 because of better economic conditions and easing regulations. In 2013-2016, Vietnam made starting a business easier by allowing companies to use self-printed value added tax invoices and reducing the time required to get the company seal engraved and registered. Recently, the administration published the notice of incorporation online and reduced the cost of business registration.
However, such reforms seem not comprehensive enough for small-scale companies. Most have difficulty surviving three years. Figure 1 shows an increasing increase of shutdown and suspended operations, from 97,969 from 75,413 enterprises, up over 40% YoY in 2018 so far versus 2017. In Vietnam, nearly 96% of enterprises are small and micro in terms of scale. Those companies’ profitability indicators are significantly smaller than medium- and large-scale companies (figure 2). Although their own resources are limited, the access to credit is not easy due to the issue of collateral. According to GSO’s survey, the micro group lost nearly USD 1.5 Bln in 2016 while the amount of taxes and fees paid was nearly USD 2 Bln.
In our opinion, there are possibilities that the previous reforms are only related to more opened business registration instead of a comprehensive support to the private sector, especially the SME group. According to World Bank’s Doing Business report, the sub-group of ‘starting a business’ scored the second highest number of 84.8 points, just below that of getting electricity. The starting-a-business topic measures the number of procedures, time, cost and paid-in minimum capital required for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business cities. As mentioned, such requirement are good in Vietnam. However, the issues of getting credit, enforcing contracts or resolving insolvency have not clearly improved.
In 2019, VDSC believes that better conditions for the private sector is a necessity. The 12th National Congress of Vietnam Communist Party has approved measures to deal with, however the draft of reducing the tax burden on SMEs is still being processed.