SMEs forced to pay more "informal charges' to cut through red tape

By Chi Hieu, Dam Tuan   April 1, 2016 | 11:42 am GMT+7

A worryingly high number of micro and small firms say they are “harassed during administrative procedures", and small enterprises lose 13 percent of revenue to "informal payments".

The newly-released Provincial Competitiveness Index 2015 showed that the burden of informal charges hampers the development of small and medium enterprises. The report revealed that 62 percent of micro firms and 68 percent of small enterprises said they consider paying informal charges a common practice.

This marks a slight increase from last year's report when the figure for small businesses stood at 66 percent, and a significant jump from 2013 when it was down at 41 percent.

65-percent-of-enterprises-pay-bribes-and-suffer-from-harassment-during-administrative-procedures

Troublesome procedures such as land, tax, customs, fire safety and payment clearance are hampering SMEs. Photo: VnExpress 

These informal charges are significant compared with the revenue of most SMEs. About 11 percent of micro enterprises, 13 percent of small businesses and 10 percent of medium firms said that informal charges take up more than 10 percent of their revenue, while larger firms incur a lower figure of seven percent.

The report indicates that enterprises rank informal costs as one of their main concerns and highlights the disparity of treatment between state-owned enterprises and private firms.

According to the report, the burden of administrative procedures frustrate enterprises in which troublesome paperwork includes social insurance, land, tax, customs, fire safety, labor, environment protection and payment clearance through state treasuries.

SMEs need to spend a lot of time and money to fulfill these administrative procedures. 59 percent of enterprises said paid bribes during customs procedures, nearly seven percent lower than last year, while over 66 percent of businesses disclosed that state official ask for bribes disguised as bureaucratic regulations.

In recent years, new policies have been adopted to help SMEs develop and improve their operations, but many have been unable to benefit.

The Provincial Competitiveness Index is an annual report released by the Vietnam Chamber of Commerce and Industry and USAID to assess the ease of doing business, economic governance and administrative reform across Vietnam to promote private sector development. The index is a useful indictor for both national and foreign investors.