|Handing over the right of prosecution and investigation to tax authorities may halt tax evasion? |
Authorities powerless in face of tax evasion by foreign firms
In reality, despite the fact that foreign firms are acquiring massive annual revenue and profit from their operations in Vietnam, the local government faces difficulties in collecting tax from them, as could be seen with the examples of Uber and booking sites Agoda, Booking.com, and Traveloka.
A number of these enterprises have been delaying tax payments, while others took advantage of loopholes to evade tax obligations.
Notably, in late January 2017, the Ministry of Finance (MoF) asked booking sites that allow tourists to book hotel rooms in Vietnam to calculate and pay VAT and CIT.
Targeted websites include Agoda, Traveloka, Booking, and Expedia. The CIT rate is 5 per cent of the total revenue. VAT is calculated on the added value that the companies, called “the foreign contractor” by the ministry, make.
MoF directed Vietnamese hotels to sign contracts with the foreign booking sites, specifying that they will declare and pay tax on behalf of foreign contractors and can deduct the amount from subsequent payments they make to the foreign contractors.
However, MoF also admitted that it will have to continue making studies to issue regulations to control these firms’ operations.
On another side, Uber B.V has also been delaying tax payments. Notably, after inspecting Uber’s tax records since it started operations in Vietnam in 2014 to June 2017, the Ho Chi Minh City Department of Taxation requested Uber to pay VND10.5 billion ($461,589) in taxes withheld, as well as VND26.3 billion ($1.16 million) of VAT, and more than VND14.6 billion ($641,841) in personal income tax.
Besides, the taxation authority issued a fine of VND10.3 billion ($452,805) for false tax declaration and the company was requested to pay VND4.9 billion ($215,412) to even its balance.
However, by the December 23, 2017 deadline, Uber only paid VND13.3 billion ($585,665) of the VND66.68 billion ($2.94 million) of tax arrears, thus the department decided to take enforcement measures.
After receiving the tax department’s decision to enforce its tax arrears, Uber officially took the department to court. At present, the lawsuit has been suspended due to Uber B.V’s lack of legal standing.
Deputy Minister of Finance Nguyen Thi Mai stated that the tax department faces difficulties in collecting tax arrears from Uber B.V. The collection has become even more difficult since Uber B.V sold its stake in Southeast Asia to Grab.
These are all examples for foreign enterprises supplying cross-border services and making massive revenues without offering a grip to tax authorities to enforce tax obligations.
Foreign firms getting cornered
According to Pham Ngoc Lai, acting head of the Inspection Division under the General Department of Taxation, handing over the right of prosecution and investigation to the tax authorities is an effective tool to hinder tax evasion as soon as signs are detected.
In Vietnam, tax authorities do not yet have the right of prosecution and investigation, thus when they discover violations in tax payments, they have to transfer the investigation to the police.
However, in reality, almost all incidents prove to be too complicated to be resolved. Besides, the police have no real expertise in tax-related issues, making investigations difficult. Furthermore, sending the cases to intermediary authorities will take more time, leading to long-delays in tax collection.
Notably, in 2011-2015, the tax authorities sent 16,087 cases to intermediary authorities, however, only 395 of these were prosecuted, while the rest were dropped as not enough evidence could be collected.
Meanwhile, in 80 countries where tax authorities are permitted to investigate and prosecutre firms, tax evasion is far rarer due to constant monitoring and quick action.