|
|
|
|
STARTING A BUSINESS IN VIETNAM
How easy?
The Prime Minister recently requested the Ministry of Planning and
Investment, Ministry of Public Security and Ministry of Finance to
jointly develop an inter-ministerial circular to simplify the
business startup process by streamlining the three main business
entry procedures - business registration, company seal registration
and tax registration. As is increasingly the case all over the
world, the government of Vietnam seems to agree with the assertion
made in the Doing Business in 2006 report that if it is easy to
start a business then more businesses are formally set up. And more
formal businesses means more jobs, more investment, more
productivity and higher economic growth.1 This bulletin
discusses the benefits of easier market entry for firms and how the
government can improve the process thus stimulating the growth in
the number of registered firms.
Simplified business entry procedures positively impact private
sector growth
The Enterprise Law of 1999
was a significant reform that made it easier to start a business in
Vietnam and led to a surge in new firms being started. Between 2000
and 2005, over 160,000 new firms entered the market - three times as
many as the number of enterprises that registered during the
previous decade.2 Further streamlining the business entry
process, however, might yield an even more significant result, if
even a small percentage of the estimated two million informal
household businesses in Vietnam were to register and join the formal
economy.
More formally registered
enterprises would benefit both businesspeople and the overall
economy in three significant ways. First, because formal enterprises
have less of a need to hide from government inspectors, they can
grow to a more efficient size. According to Doing Business in 2005,
on average, informal enterprises produce 40% less of goods and
services than their counterparts in the formal economy.3
Moreover, registered entrepreneurs can obtain bank credit, use
public services (such as the courts to resolve disputes) and
directly export. Finally, formal enterprises pay taxes, which
increase the government's revenue base. As more companies move into
the formal economy, the government can consider lowering the tax
burden on all firms, which would give them more incentives to
produce goods and services, and expand.
Business
entry procedures in Vietnam are still cumbersome, time consuming and
costly, due to inefficient coordination among administrative
agencies
Doing Business in 2006
reports that it takes only two procedures, three days, and 0.9
percent of annual income per capita to register a private
limited-liability company in Canada, and only two procedures, two
days, 1.9 percent to do the same in Australia.4 In these
top-ranked countries, an investor merely needs to register his or
her business with the registration and tax agencies before starting
operations. By contrast, in Vietnam, it takes 50 days, 11 procedures
and 50 percent of annual income per capita to register a business.
The three main procedures in this process are: applying for a
business registration certificate (15 days), obtaining a company
seal (14 days), registering for a tax code and purchasing
pre-printed invoices (15 days). Over the past few months, these
processes were mapped in several Northern provinces; the results
were in fact very close to the findings of the Doing Business
report.5
At the provincial level,
three administrative agencies the Department of Planning and
Investment, the provincial Tax Department and the Department of
Public Security are responsible for these procedures. Firms complain
that the entire process is disconnected and that the administrative
agencies do not communicate with each other. As a result: i)
prospective entrepreneurs have to fill out many different forms
containing the same information; ii) they have to perform those
steps sequentially (for example, waiting for 10-15 days to get the
business registration certificate before starting the process of
obtaining a company seal, getting a tax code before purchasing
invoices, etc.) rather than in parallel; and iii) most procedures
are manual, requiring businesspeople to visit each administrative
agency at least several times. Though some provinces have begun
piloting online registration, investors are only able to obtain
forms and track their applications online; they still have to
physically go to the DPI office to submit hard copies of all
documents and signatures.
A
“one-stop” approach for the three startup processes (business
registration, company seal and tax code registration) could
contribute to effective reform of business procedures
International experience
has shown that efficient coordination among different administrative
agencies is critical to achieving effective business startup reform.
Many developing countries have enhanced such coordination, and the
lessons from these efforts could be useful to Vietnam. Successful
measures include: i) creating a single entry point through which
businesses can conduct all business startup procedures (having all
the interactions between agencies occur behind the scenes so that
entrepreneurs would not have to go to each agency separately); ii)
introducing a single business registration form through which
businesses can provide all the information needed by different
agencies; iii) issuing a single identification code to each business
(which may mean merging the business registration code with the tax
code); and iv) using information technology for business
registration (allowing electronic filing, making registration
information available to different government offices, developing a
national registration database that allows for electronic name
search, etc).
In Vietnam, while awaiting
a national legal framework that governs inter-agency coordination,
some provinces have already taken measures to make business
registration easier in order to attract investment. For example, the
government of Lao Cai province has pioneered a “three-in-one”
approach in which the business registration office within the DPI
acts as the single access point for business startup procedures. In
addition to issuing business registration certificates, DPI is
responsible for interacting with the Tax Department and Public
Security Department to obtain tax codes and seal making licenses
within only 15 days. This streamlined “one-stop” approach has been
highly praised by the local business community, and is being
considered by other provincial governments.
It should be noted that
there have been unsuccessful examples in Vietnam in the past of
“one-stop shops” for administrative procedures that have been
criticized as “one more stop shops.” To ensure that a “one stop”
approach for business entry does indeed simplify business startup,
lessons learned from past experience indicate that capacity building
and enhanced authority/decision-making power for staff of the single
access point are necessary to ensure success.
(1) International Finance Corporation
and World Bank, Doing Business in 2006: Creating Jobs, September
2005.
(2) GTZ-CIEM, 6 years of implementing the Enterprise Law: Issues and
Lessons Learnt, 2006.
(3) International Finance Corporation and World Bank, Doing business
2005: Removing obstacles for growth, September 2004
(4) The data for all sets of indicators in Doing Business in 2006
are for January 2005.
(5) Fieldwork carried out by both IFC-MPDF and the Vietnam
Competitiveness Initiative (VNCI). |
