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Ministry stalls shadow economy study

Update: February, 27/2018 - 09:00
Peddler walks the streets in Hà Nội. — VNS Photo Trương Vị
Viet Nam News

HÀ NỘI — After much debate over the true nature of undocumented market transactions in Việt Nam, otherwise known as the shadow economy, officials have again postponed the release of an accredited study on the matter.

Speaking at the Government’s regular press conference in early February on the underground economic sectors, Deputy Minister of Planning and Investment Nguyễn Thế Phương said that his ministry was set to complete an assigned report compiling statistics on these unofficial economic activities.

Accordingly, the Ministry of Planning and Investment (MPI) will submit said scheme to the Government within the first quarter of 2018. This is a delay from the previous deadline of 2017’s fourth quarter, set by Deputy Prime Minister Vương Đình Huệ in a June decree last year.

Explaining the delay, Deputy Minister Phương said that based on the General Statistics Office’s (GSO) initial research, the MPI is currently seeking opinions of relevant ministries on this scheme, in order to clarify what the so-called unobserved economic sector truly entails.

Surprisingly, according to Phương, small-scale economic activities done by households and individuals account for 87.7 per cent of total production, and generate up to 32 per cent of total employment in the country.

He said that this particular sector’s contribution to Việt Nam’s gross domestic production is by no means insignificant. Therefore, the lack of accurate statistics on the informal economy has resulted in the Government missing out on a considerable amount of taxable capital flow.

Phương went on to explain that at the moment, the MPI considers the shadow economy to consist of five components, divided into illegal transactions and undocumented ones.

The first component of underground economic activities includes legitimate but intentionally hidden business activities, in order to dodge paying taxes and insurance, avoid complying to State regulations on minimum wage, maximum working hours or health conditions for employees and evade legal and administrative procedures such as financial statements and statistical reports.

The second component is illegal and prohibited economic activities, such as drug trafficking, human trafficking or prostitution.

The third unobserved informal economy component include household business units, which are usually small scale, simple production processes with little clear distinction between labour and capital, while the relationship between workers and employers is created on a temporary basis, or within a family circle, rather than a formal contract.

The fourth component includes household economic activities for self-consumption and accumulation for a single family’s members.

The fifth component is economic activities that are simply omitted from official data due to missing information from the survey data collection process.

Assessing the need to recalculate Việt Nam’s GDP with the shadow economy rather than without, Nguyễn Đức Thành, director of Institute for Economic and Policy Research, said at a conference in January that the principle of calculating GDP is based on observable and taxable activities, as a basis for debt repayment, so taking unobserved economic activities into account must be done carefully lest the payment balance is upset.

He argued that underground economy should not be included in GDP to increase the size of the economy. If the informal economy is calculated, the total GDP of Việt Nam will increase. When GDP increases, it will change many numbers, such as budget overspending, while the ratio of public debt to GDP will naturally decrease.

Nguyễn Bích Lâm, GSO’s Director General, said it was highly unlikely that the non-observed economy could be as large as 30 per cent of Việt Nam’s GDP.

At a January press conference, Lâm said that the authorities were adamant that such economic practises were under control and would soon be regulated heavily as a compliant part of the national economy.

According to the GSO’s findings, Việt Nam now has 5.9 million economic units, including 518,000 enterprises, by the end of 2017.

The private sector generated revenues of around VNĐ9.76 quadrillion (US$434.7 billion) in 2017, followed by the foreign invested sector with VNĐ4.81 quadrillion ($214.2 billion). The State-owned sector generated the least amount of revenue at VNĐ2.88 quadrillion ($128.2 billion). — VNS

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