Despite concerns from economic experts about the undetermined scale and scope of Vietnam’s undocumented market transactions, authorities are adamant that the illicit economy is under control and will soon be regulated heavily (Photo: dantri.com.vn)Hanoi (VNS/VNA) -Despite concerns from economic experts about the undetermined scale and scopeof Vietnam’s undocumented market transactions, authorities are adamant that theillicit economy is under control and will soon be regulated heavily.
In its latest move, the Ministry of Planning and Investment (MPI) is scheduled to finalise and submit to the Prime Minister’s Office a scheme on undergroundeconomic sectors on January 30. Under the direction of Deputy Prime Minister Vuong DinhHue, the report details the sectors’ structure and statistics, based on theGeneral Statistics Office’s (GSO) findings.
Vo Tri Thanh, former deputy director of the Central Institute for EconomicManagement (CIEM), said that since 1990, the GSO estimated the size of theunderground economy to be more than 10 percent of GDP.
About 10 years ago, reports of evaluations conducted by other agencies andorganisations measured the amount of cash outside official circulation. Theresults showed that the value of this area was about 30 to 35 percent of GDP.
However, economic experts raise questions on the authenticity of the data.
Nguyen Duc Thanh, Director of the Institute for Economic and Policy Research(VEPR), said that a re-calculation of the informal economy was necessary forthe Government to grasp specific data and set out a suitable developmentstrategy.
However, he argued that the underground economy should not be included in GDPto increase the size of the economy. If the informal economy was calculated,the total GDP of Vietnam would increase. When GDP increases, it changes manynumbers, such as budget overspending, while the ratio of public debt to GDPnaturally decreases.
Luu Bich Ho, former Director of the Development Strategy Institute under theMPI, said that statistics of the unregulated sector or underground economy hadbeen around for a long time. The problem was their accuracy and purpose.
Ho said that if fully observed, there were reliable data that could sum upunderground economic activities into the overall GDP, increasing the latter’sscale. Therefore, the public-debt ratio could fall from 64 percent to 61 or 62percent.
The economic expert added that additional statistics, as required by Deputy PMHue, were needed. But policymakers needed long-term restructured measures for amore accurate national growth model.
‘Indeed, we can gain about five to 30 percent more of the State budget’s taxfrom these economic transactions. The most important thing now is how theGovernment can statistically manage such underlying profit,” Ho said at a GSOmeeting.
Nguyen Bich Lam, GSO Director General, said it was highly unlikely that thenon-observed economy could be as large as 30 percent of Vietnam GDP, rejectingan earlier report by Fulbright University Vietnam, whom he believedto have taken into account household economic activities as well.
Lam said that the underground economy, or black economy, were economicactivities not measured by conventional methods and reflected in official data.This whole could be divided into several main sectors of illegal economy -unreported, unrecorded and informal.
According to the GSO, these were purposely hidden activities to avoid tax orevade State management regulation - drug production and trading, prostitution,casinos and unreported data and statistical errors or inaccurate informationprovided by businesses and agencies.
‘There are difficult elements for the GSO in collecting information forcalculations. Particularly underground and illicit economic activities cannotbe gleaned in a formal way, and thus cannot be taken into the same categoriesas formal ones,’ he added.
This meant they were difficult to quantify, and Lam demanded that calculationmethodologies be reviewed.
When data from the informal economy was officially accounted for in thecountry’s economic performance, the GDP scale would be adjusted, which would befollowed by the tax rate, public-debt ceiling and government-spendingadjustments, Lam said, adding that these changes would not affect the growthrate.
According to the Government Office’s statistics, should the unofficial economybe incorporated, the country’s GDP would instead have so large a multiplierthat public sector debt would be significantly greater to finance developmentneeds.
Ho named several factors that could influence Vietnam’s underground economicgrowth. Loopholes in national laws were the main reason.
For example, regulations stipulate that when the number of staff exceeds 10,business establishments and organizations must register as enterprises and paythe corresponding (i.e. higher) taxes. However, many businesses, thoughexceeding this number, have been hesitant to become anything larger thanextra-small enterprises, thus keeping overall business growth rate stagnant.
Another reason, according to Ho, is that businesses in local, remote wards andcommunes are protected by local governments, leading to tax evasion by thesehouseholds - and eventually state budget revenue loss.
Dau Anh Tuan, head of the legal department of the Vietnam Chamber of Commerceand Industry (VCCI), said that according to a study by the InternationalFinance Corporation (IFC) in 2003, Vietnam’s excessive control andconcentration had promoted informal activities in the economy.
Tuan said the underground economy would greatly restrict the opportunities andscale of other businesses, making them less competitive at the national leveland less able to integrate into international trade.
Economic expert Le Dang Doanh said that all countries had an informal economy,but the rates were different. The best way to manage underground business wasto use public e-government.
“The best solution is to create favorable conditions for the Government, butalso to be transparent for businesses with good brand names,” Doanh said.-VNA
VNA
