Enterprises plagued by unclear tax and fee regulations

Nguyen Xuan Nang, director of Xuan Thanh Nam Trade and Investment JSC in the northern province of Quang Ninh, will go to South Korea next week to work with two partners about supplying his firm’s software services to them.

Nang told VIR that the two partners have also come to Vietnam to work with him, and almost all procedures have been completed.

“But there is one procedure about value-added tax (VAT) that not only me, but also the Korean partners feel confused about. We are working with tax agencies on it,” Nang said.

Under Circular No.219/2013/TT-BTC on VAT, dated December 31, 2013, exported services are entitled to 0 per cent VAT. However, in order to enjoy such a preferential tax rate, exporters must meet two conditions. The first condition is that the services must be directly provided to overseas organisations or individuals, and the second condition is that the services must be consumed outside of Vietnam.

However, there is currently no definition of the first condition under current regulations. It is commonly understood that as long as the contracting party is an offshore entity, this condition is met. Meanwhile, for the second condition, there is also no specific definition of ‘consumption outside Vietnam’ under VAT regulations—this is therefore dependent on the interpretations of different tax authorities or even individual tax officers.

“VAT for exported services is one of the most problematic tax-related issues in Vietnam. In many cases where services are provided to overseas entities, the local tax authorities argue the services are consumed in Vietnam on the basis that they are rendered inside Vietnam and deny that the 0 per cent VAT rate is applicable,” Nang said. “Consequently, instead of enjoying VAT exemption, certain providers are subject to 10 per cent.”

Nang’s story was one among many told by the hundreds of business representatives that attended this week’s dialogue on tax and customs policies in Hanoi. The dialogue was attended by enterprises, the Ministry of Finance, and the Vietnam Chamber of Industry and Commerce (VCCI), which represents the Vietnamese business community.

The representatives and VCCI raised concerns about vague regulations on taxes, fees, and customs.

VCCI vice chairman Doan Duy Khuong said unclear VAT regulations are among the many vague rules plaguing enterprises.

“For example, there have been abnormally high levels of taxation claimed by many healthcare firms. They said they are suffering from a 30 per cent special consumption tax rate—which is equal to that for such services as karaoke, wine, beer, and cigarettes—a 10 per cent VAT, and a 25 per cent corporate income tax (CIT) rate,” Khuong said. “If they pay all of these taxes, they will not be able to exist much longer and will soon go bankrupt.”

Nguyen Thi Nga, representative from a plastics manufacturing firm in the northern province of Hai Duong, said that two months ago she received a document from the authorities asking her firm and many others in the locality to pay land rental in advance for the whole of 2018.

“However, the problem is that the local authorities failed to give us any notice. Instead, they want us to pay immediately without negotiation,” Nga said.

According to Khuong, in many localities, land rental fees have been soaring, affecting enterprises’ performance.

“Authorities should have given notice to enterprises. In 2016, many enterprises received a document on a land rental price hike. However, the hike retroactively took effect three years before the firms received the document on it,” he said.

In another case, Pham Quy Phuc, the director of a company producing confectionery products in the northern province of Hung Yen, said that many companies are facing difficulties in the CIT deductibility of expenses indirectly related to their business activities.

“Our costs for promotional programmes are not allowed to be included in our costs for business activities, which can enjoy CIT deductibility,” Phuc said.

According to Phuc, firms deploy promotional programmes targeting their end-users, with the purpose of raising the sales of distributors, which indirectly increases the sales of the companies themselves. However, the existing tax regulations fail to provide guidance on this issue and in some recent tax audits, the deductibility of such expenses has been challenged as not being directly related to business activities.

“Enterprises suggested that the laws and regulations be consistent, specific, clear, and in favour of enterprises,” Khuong stressed.

“We need greater reform efforts that help create a fairer and more competitive environment where decisions are made faster, procedures are less complicated, rules are fairly enforced, and companies compete on their merits—including access to land and opportunities,” Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi, told VIR
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