Ho Chi Minh City encourages business households to transform themselves into companies. Illustrative Image (Source: VNA)

HCM City (VNA) – Ho Chi Minh City has applied several measures to boost the development of enterprises, including turning business households into companies.

Experts said there are three main sources for business development –new startup firms, existing enterprises expanding their operation and business households developing into companies.

However, the success ratio of startups is low, meaning they make modest contributions to growth in the number of businesses. Meanwhile, existing firms are likely to improve their quality rather than multiply in number. Therefore, the city has put much stock in switching business households into companies, a quick way to increase the quantity of local enterprises.

Developing companies from business households has been integrated into business development policies of the city, including a programme to support new companies launched by the municipal Tax Department in May 2017.

After a year of implementation, the programme has assisted more than 21,000 startups and companies that began as household businesses. But the Ho Chi Minh City Tax Department also pointed to difficulties in encouraging households to form companies, explaining the low ratio of transformation.

Most of the households are small scale with instable operation, while the owners find accounting and tax declaration procedures complicated.

The department reported that after a year, only 3,100 business households had turned themselves into companies, lower than the target and much under the total 36,200 business households with potential to become companies.

Nguyen Nam Binh, Vice Director of the department, said the households have limited awareness of the Law on Enterprises and modest knowledge and skills in business management. They maintain the habit of doing small business without paying attention to receipts or tax policies. Moreover, becoming companies means the households must pay more taxes and insurance premiums, added Binh.

Binh stressed that regulations in accounting and tax declaration are complicated, especially for small firms.

Experts asserted that transforming business households into companies benefits both businesses and the economy, as the policy urges the Government to implement more measures to improve the business environment and speed up administrative reform.

However, one of the obstacles hindering households from forming companies is the increase in legal obligations and indirect costs. A lack of business management skills also makes business households less confident to develop into companies.

At the same time, the high percentage of enterprises that close every year also showed that businesses still face many difficulties in their operation, they said.

The Ho Chi Minh City’s Statistics Office revealed that in the first six months of 2018, the city granted licences to 20,194 enterprises with registered capital of 226.1 trillion VND, up 8 percent in quantity but down 10.4 percent in capital.

Also in the first half of 2018, 1,145 enterprises were dissolved, while 2,920 others halted their operations.

Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry, said the number of firms quitting the market was high, which reflects the abundance of difficulties they face.

Only by solving problems from administrative procedures, business conditions as well as weaknesses in technology and management, will give the city hope for a  high rise in the number of businesses and low ratio of bankruptcy, he stated.

Economist Huynh Thanh Dien also mentioned that enterprises can only develop in a favourable environment with fair competition as well as supporting tools related to storage, logistics, production site, finance and telecommunications.

He said that Ho Chi Minh City should roll out solutions to boost the improvement of all the factors to facilitate businesses’ growth.

On the other hand, the city should help business households recognise opportunities when becoming companies, while taking advantage of the guiding role of big firms for small and medium-sized ones by fostering links in technology, vocational training and capital, he added.-VNA