Highway contractors dispute liability for hefty tax bill

The General Department of Taxation (GDT) has asked its provincial agencies to issue notices of additional taxes to five contractors of the Noi Bai-Lao Cai highway projects, namely the China-based Guangxi Road and Bridge Construction Ltd, Keangnam Enterprise Ltd (Keangnam), Posco E&C Ltd, Doosan Heavy Industry and Construction Ltd, and the Vietnamese contractor Vinaconex E&C.

The companies were reportedly found to have filed incorrect tax returns based on a low estimation of the amount of soil and rocks quarried, thus leading to lower tax bills for royalties and environment protection fees related to the project.

However, the companies are disputing the interpretation of the regulations and assessments, and are looking into the matter with the local tax authorities.

The Yen Bai tax agency disclosed to VIR that it would collect VND6.7 billion ($307,340) from Keangnam, one of the contractors working on the Noi Bai-Lao Cai highway project.

Tuan Nguyen, a tax specialist from the international firm Deloitte, explained that in the early stages of the Noi Bai-Lao Cai highway project, Vietnam Expressway Corporation (VEC) told its five contractors that they would not face a tax obligation for their rock-levelling activities to build the road.

However, after the project was already underway, the GDT requested that VEC revoke this guidance, and that provincial tax agencies collect the arrears, thus shifting the goalposts for the contractors.

“If this liability had been declared earlier in the tender dossier drafted by VEC, contractors would have been fully aware of the obligation to declare the amount of soil and rock quarried,” said Tuan.

The aforementioned building contractors are the first ones to be investigated for royalties and environmental protection fees payments in relation to highway projects. The arrears sum was significant due to the project’s large scale and hilly terrain in the provinces through which the highway stretches.

Notably, although the companies were assessed in terms of fees for late payment of Corporate Income Tax, Personal Income Tax, and Value Added Tax, they were not assessed on fees for administrative violations in terms of royalties and environmental protection fees.

Deloitte’s Tuan Nguyen said that “Such clemency implied sympathy by the tax collectors, since the royalties of highway projects has been a controversial issue of obligation under the guidance of managing parties.”