Household Businesses Constitute a Unique Form of Business in Viet Nam

Diep Nguyen

12:22 25/12/2018

BizLIVE -

Approximately 8 million workers are employed by HHBs. The sector creates about 30.4% of GDP though contributing merely 1.56% to government budget annually (General Department of Tax, 2018).

Household Businesses Constitute a Unique Form of Business in Viet Nam
Household business (HHB) sector is an important pillar of the private sector with its share of GDP being three times larger than that the formally registered enterprises. HHBs have a longer history of development as compared with formally registered enterprises and FIEs.
Household businesses constitute a peculiar and unique form of business in Viet Nam and were accepted as a form of private initiative during the planned economy times. Before 1986, household businesses existed in the form of microscale goods production units that includes artisans, farmers, and small service providers that did business after being licensed by the government. 
This is the only form of private sector business, though tiny, that were allowed to exist during that time besides the dominating role of the state sector in the economy. According to GSO, in 1975, the microscale private sector producers of this sort only account for 8.3% of the GDP (Statistics Year Book 1983). 
In 1986, microscale nonfarm household businesses employed 23.2% of the total workforce and created 15.3% of total industrial outputs (Statistics Year Book 1988). By the end of 1989, the whole country counted 333,300 registered HHBs besides 3,020 SOEs, 21,901 cooperatives, and 1,284 private businesses. 
Before 1990 when the two laws on private companies and on sole proprietorships were introduced, HHBs were officially recognized by the government by the Decision No.27/HDBT, which recognized the status of individual business units and private business units in the form of HHBs and small-scale industrial HHBs.
After the Doi Moi was launched, HHBs flourished and were chosen to be the favorable business form by millions of entrepreneurs to start their business. To date, HHBs are still the preferable form for people to start a business. HHBs now constitute an important pillar of Vietnamese economy. HHB sector plays an extremely important role in ensuring the resilience of the economy especially at times of external shocks.
Approximately 8 million workers are employed by HHBs. The sector creates about 30.4% of GDP though contributing merely 1.56% to government budget annually (General Department of Tax, 2018). HHBs provide services or products in areas and industries underserved by enterprises. 
HHBs are defined in regulatory documents (Law 68/2014/ QH13 “Law on Enterprises” and its Decree 78/2015/ND-CP “Enterprise Registration”). HHBs follow a regulatory regime that in real terms is much lighter than that applicable to enterprises in terms of registration, bookkeeping, tax report and payment, and social security obligations. However, they are subject to limitations in the scope of doing business. They are also prone to more interaction with authorities, which often induce harassment and informal payments.

DIEP NGUYEN