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Vietnam: Under-the-table fees still plague businesses, more transparency needed
The 2021 report on provincial competitiveness index (PCI) released by the Vietnam Chamber of Commerce and Industry (VCCI) on April 27 showed that unofficial fees are on the decrease, but remain common in some spheres of state management.
The survey found that 41.4 percent of enterprises had to pay unofficial fees in 2021, lower than the 44.9 percent in 2020. This was the lowest level in the last 16 years. The amount of unofficial fees has also decreased: 4.1 percent of enterprises said they had to use 10 percent of revenue to pay this kind of fee, much lower than the 9.1 percent in 2016.
The number of enterprises paying unofficial fees to inspectors accounted for 20.9 percent, which meant a significant decrease from the 27.7 percent in 2020. The number of enterprises agreeing with the statement that paying ‘commission’ is necessary to have opportunities to win bids decreased from 40 percent to 36.8 percent in 2021. The number of enterprises paying unofficial fees to speed up land procedures fell from 32 percent in 2020 to 29.4 percent in 2021.
It is noteworthy that foreign invested enterprises (FIEs) said 41.9 percent of enterprises did not have to pay unofficial fees, a very encouraging figure, since 2010.
Nevertheless, enterprises still had to pay very high fees in some fields. Harassment by state agencies when enterprises follow administrative procedures accounted for 57.4 percent in 2021, higher than the 54.1 percent in 2019-2020.
The average proportion of enterprises paying unofficial fees in construction inspection activities was 67.22 percent. The figure was 61.36 percent in granting licenses to enterprises in conditional business fields.
Paying unofficial fees on a small scale, or ‘petty corruption’, was still common and could be seen in two types. First, the ‘lubricating fee’ in essential public services such as business registration and land access. Second, the unofficial fees in market management, environment inspection, taxation, fire prevention and fighting inspection, land inspection and business registration inspection.
As for FIEs, 5 percent of enterprises said they had to use 5-10 percent of revenue to pay unofficial fees, while the figure was just 2.1 percent in 2020. The figures are very high in some fields, such as import-export procedures (38.9 percent), examination and inspection (25.4 percent) and land procedures (21.1 percent).
The unofficial cost for land procedures of FIEs in 2021 increased sharply compared with the 10.3 percent in 2020. The figure is consistent with the increase in percentage of enterprises complaining about troubles when following procedures related to land in the PCI report.
Up to 60.4 percent of enterprises said their work is solved after paying unofficial fees. This means that the predictability of work results when paying under-the-table money has increased significantly.
The benefit of this is that enterprises can predict the amount of under-the-table money they have to pay, while the serious consequence is that paying that kind of money has become common.
Vietnam enterprises’ competitiveness
Economists all said that unofficial fees are a heavy burden on businesses, affecting competitiveness of Vietnam’s enterprises. As the fees are taken into account when defining production costs, the selling prices of products are high and less competitive.
In order to legalize unofficial fees, enterprises have to pay more money, which results in fraud in business, such as trading invoices and dishonest finance and tax reports.
According to Dau Anh Tuan, Head of the Legal Department of VCCI, the production costs of Vietnam’s products are competitive if compared with other countries. However, because of unofficial fees for administrative procedures, Vietnam’s products are less competitive. So, the impact of unofficial fees is clear.
Unofficial fees not only lead to high compliance costs, but also make the business environment less healthy and less competitive, deterring enterprises that want fair competition.
The major reason behind this, according to Tuan, is the low quality of the institutional system and legal documents. Unclear, unreasonable, complicated and unpredictable administrative procedures give opportunities to agencies and officers to harass enterprises and demand unofficial fees.
The survey on unofficial fees shows that space for reform remains and Vietnam still has a long path to go to minimize unofficial fees.
In order to eliminate unofficial costs, it is necessary to make all procedures public and transparent, and to put e-government into operation soon.
Tran Thuy
Source: https://vietnamnet.vn/en/under-the-table-fees-still-plague-businesses-more-transparency-needed-2014189.html