Addressing firms’ taxing times

>> Corporate income taxes may decline

Head of the Law on Tax Management’s review team and former General Department of Customs chief Dang Thi Binh An told VIR that the current tax forgiving mechanism should be expanded to help settle  business and the tax sector difficulties.

Tax arrears amounted to VND32.080 trillion ($1.52 billion) by the end of the second quarter in 2011, surging VND5.170 trillion ($246.2 million) against earlier this year though the tax sector took drastic measures to raise tax revenue. What should be done to reduce tax arrears?

The tax sector should continue applying resolute measures to collect tax including seizing violators’ assets and auctioning those assets, procuring violators’ money and assets which are held by other organisations and individuals; postponing their use of invoices, taking back tax codes, business registration certificates or operational licences of violators.
Effective solution packages are also required to lessen aggregated tax arrears.
 
Tax forgiveness is also an option. Is that the case?

Under current tax laws, tax arrears will be forgiven if bankrupt firms which have fulfilled payment obligations in light of current bankruptcy regulations and have no other assets for tax or fine payment and individuals who have died, missing or lose civil action capacity and have no asset to pay up tax and fine arrears.

In my view, tax arrears should be written off if it is a small sum. If tax bodies insist in making procedures to collect that sum, their expenses may even be bigger than the amount they actually collect, meanwhile firms’ tax will further mount up, costing them efforts and money.

Should tax arrears forgiveness be given to big sums, which cannot be collected?

As far as I know, bad debts account for around 10 per cent of the tax sector’s total tax arrears. Of them, many debts lasted for several years and involved dismantled or bankrupt firms which were yet to fulfill necessary procedures before going out of business. In many cases, legal representatives of the firms could not pay the debt; they were either dead or no longer resided in the locality.

In fact, it is extremely hard for the tax sector to collect such debt but since there does not exist a mechanism to write off those tax arrears. I suppose to forgive those tax arrears of over 10 years that the tax sector had taken diverse measures but still failed to collect due to unexpected reasons.  

Current lending rates are higher than the interest rates applied to firms’ tax arrears, leading to firms accepting to incur fines. How to address the situation?

In light of the Law on Tax Management, firms incur 0.005 per cent fine rate imposed on the tax arrears, equal to 1.5 per cent per month or 18 per cent per year, which is lower than current lending rates of over 20 per cent generally. To curb the situation, it is necessary to hike the interest rate imposed on tax arrears to beyond bank lending rates in addition to certain fines.