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What’s behind a beautiful figure?
Five years ago, the World Bank said that the underground economy accounted for 15% of GDP of Vietnam. Five years later, in 2008, the figure is 15.6%, a beautiful figure, one of the best now in Asia.
However, doubts still have been raised over the figure, which is used to measure the transparency and health of economies. Does the figure truly reflect the nature of the national economy, where transactions in cash still dominate, where a lot of factors are still hindering business?
When Quang Ninh agencies announced that 10mil tonnes of coal are being exported illegally a year, they might have thought that the figure simply showed the scale of smuggling activities they had to fight. However, Le Dang Doanh, a senior economist, saw the figure from the angle of an economist, saying that the figure reflects the life of the underground economy in Vietnam.
Underground economy, where?
According to Doanh, the underground economy in Vietnam, where transactions in cash remain popular, proves to be take place in many fields. A lot of transactions do not have invoices and bills, and can be found in both state agencies and enterprises, and private-run pho shops and groceries. No-bill transactions also occur in agriculture, the field that makes up 25% of Vietnam’s GDP.
It is clear that in this case, the state budget suffers most from no-bill transactions. Enterprises and tax offices may collude with each other to declare wrong prices of commodities and prices in order to evade taxes.
Justin Yap, an expert on the private sector under the International Finance Corporation, said when he flew to Hanoi in late 2007 to release Doing Business 2008 that no-bill transactions were generating a lot of wrongdoings. He said that Vietnamese businesses now have to spend a lot of money on underground fees.
The world’s 2008 business environment report ranked Vietnam 128th out of 178 countries in terms of the favorability of the taxation system. A recent report by IFC showed that Vietnamese businesses have to spend 1,050 hours a year on average to fulfill tax procedures. Meanwhile, Vietnam Development Report 2006 said that the General Department of Taxation is one of the state agencies that is the most influenced by corruption.
Doubts raised over WB’s figure
According to the World Bank, with the underground accounting for 15.6% of GDP, Vietnam ranks among the most advanced countries in the region, including China and Singapore (13.1% of GDP) and Japan (11.3%).
However, Dr Doanh does not believe the figure. He said: “Many experts and I have doubts about the figures. The figure proves to be too low if compared to Vietnam’s current development level.”
Meanwhile, other researches say that the underground economy of Vietnam amounts to 30-50% of GDP, or double the World Bank’s figure.
IFC, the arm of the World Bank, also released a report, which said that the underground economy in Vietnam rose from 30% of GDP in 1997 to 51% in 2001. Underground transactions in the real estate market, for example, accounted for 70% of Vietnam’s real estate market. The report which was released five years ago, said that the figure increases year on year.
The reported quoted a Vietnamese scholar, who said that the undeclared income of families with state officials accounts for not less than a half of their declared income.
Doanh has called for another independent researcher to check the accuracy of the figure.
VNN
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