Investors seal off a shipment of fake organic fertiliser belonging to the Hoang Long Viet trading service joint stock company, a pyramid networking firm, in Vinh Long City. (Photo: VNA) Hanoi (VNA) - Vietnam lacks the legal wherewithal to deal comprehensively withdubious multilevel marketing companies operating in the country, officials say.
While acrackdown on pyramid schemes by the Vietnam Competition Authority (VCA) hasmade some headway, authorities are unable to exercise due control over themultilevel marketing sector, they add.
The VCA,in collaboration with the Ministry of Public Security (MPS), shut down 45 percentof illegal multilevel marketing companies in the country last year, accordingto the Ministry of Industry and Trade (MoIT).
The MoITsaid the VCA penalised 30 network marketing firms last year after carefulinvestigation, imposing fines of 8 billion VND (357,941 USD).
Of these30 companies, 15 had their business licences revoked, 12 shut down theiroperations and three suspended theirs.
The MoITalso said that the number of firms running selling networks apparently based onpyramid schemes decreased by 25 percent between 2015 and 2016, from over637,000 to about 425,000.
“We mustconcede that multilevel marketing is not a prohibited business, as regulated bythe World Trade Organisation. However, in Vietnam, legal documents relating tothis issue are still lacking, particularly as to which goods or services areallowed. The ministry, therefore, has proposed to the Prime Minister and theNational Assembly that more rules and regulations be developed for this sector,and firms be subjected to more investigation and control,” said Do Thang Hai, DeputyMinister of Industry and Trade.
He saidprovincial and municipal departments of Industry and Trade across the countryhave achieved greater success last year in implementing government regulationson illegal multilevel marketing activities.
The HanoiDepartment of Industry and Trade levied fines of 2.59 billion VND (115,883 USD)on network selling firms, with the infamous Thien Ngoc Minh Uy Co. payingthe largest fine of more than 1.5 billion VND (67,114 USD) as of April 2017.
Multilevelmarketing companies earned an estimated profit of 7.8 trillion VND (348.9million USD) last year, down 2.5 percent from 2015, seemingly unaffected by thedrop in downline distributors.
Also,just 11 firms made profits, with 18 reporting low earnings before taxes, not breakingeven. Overall operating margin was reportedly just 0.5 to 3.8 percent of netsales.
Multilevelmarketing firms paid around 881 billion VND (39.4 million USD) in taxes lastyear. The sector’s post tax profit for 2016 is estimated at 177 billion VND (7.91million USD), around 2.2 percent of their annual revenue.
It isalso estimated that these firms paid their employees and downline distributorsa total of 2.4 trillion VND (107.38 million USD), with an additional 44 billionVND (1.96 million USD) in promotional deals.
The VCAhas explained these numbers as the result of the extremely high level of valueadded tax paid by end consumers instead of actual corporate taxes. This alsomeans that out of more than six hundred thousand network marketing participantsin Vietnam, only a handful are actual resellers. The rest are users.
Most of the revenue for multilevel market companies came from functional fooditems (59 percent) and cosmetics (24 percent) from cosmetic items, followed byhousehold goods, clothes and other products.
Accordingto the MoIT, it is difficult to regulate pricing for these items, which meansillicit network sales companies can easily overprice them without reportingactual net sales to the authorities, enabling tax fraud.
A commonmodus operandi for pyramid sales firms is to use multilevel selling for illegaltrading of financial services or raising money illegally.
“In orderto straighten up the network marketing scene in Vietnam, the VCA intends tocontinue investigating, monitoring and dealing with irregularities,” said VCADeputy Director General Trinh Anh Tuan.
A newcircular and an amended decree have improved State management of multilevelsales activities, helping identify some subterfuges employed.
Globally, pyramid and multilevel marketing schemesappeared in the seventies and generated a lot of controversy. In Vietnam, itbegan in 1998 and the number of firms has been growing steadily in the lastfive to six years, at 20 to 30 percent a year.
The Vietnam Multi-Level Marketing Association, founded in 2009, has more than100 member companies, though only 67 firms have been officially licensed by theMoIT.
Multilevel marketing is a legitimate but controversial strategy in which thesales force is compensated not only for the sales they generate, but also forthe number and net sales of other salespersons recruited, while applyingdifferent bonus structures as the pyramid, binary and matrix models.-VNA
VNA
