August 9, 2014
Currently, businesses can hardly comply with tax regulations as they are too complicated. Even though types of taxes and their rates are defined, they are accompanied by a plethora of guidelines. It is not difficult therefore to find an example to back this argument.
Tax authorities wish to shorten the list of non-taxable items, aiming toward a uniform tax rate to ensure better simplicity and transparency. Yet value added tax (VAT) may prove quite the contrary.
As per Circular 219/2013 dated December 31, 2013 of the Ministry of Finance, businesses must spend at least VND1 billion or more on procurement of fixed assets (excluding cars under nine seats) in order to apply for VAT deduction methods. The stipulation is in fact a dilemma for many businesses, especially those established in 2014 since they have to take back VAT invoices issued before this March to cancel them and use the bills of sale released by tax authorities. In addition, businesses’ input VAT must be booked as costs, leading to increased product prices. For the manufacturing sector, the selling price of all products is subject to an additional 3% input VAT. This means their products are more expensive than those made by rivals who apply VAT deduction methods. Still, what irks them the most is that it took too long for the circular to reach to them even though the case is retroactive. The circular was released on December 31, 2013 and came into force on January 1, 2014, but it was not until February 17 that is was published on the website of the General Department of Taxation and businesses were notified of the document in early March.
It takes businesses more time and higher costs to understand the provisions of this circular and conduct the procedures for tax deduction costs businesses than the deductible sum (provided that they meet all the requirements).
Shorter tax payment time wanted
According to the World Bank, every year businesses in Vietnam have to spend 872 hours on paying taxes, four times the average in Asia Pacific, and even higher than the time for tax payment in Laos. In particular, 335 hours are spent on social insurance payment, 320 hours on VAT payment, and 217 hours on corporate income tax payment. Notably, tax payment procedures require detailed declaration based on monthly and yearly records, declaration several times a year and declaration both in writing and through electronic systems. All of these procedures make the inherently complicated taxation system more tortuous.
The Prime Minister has asked tax authorities from now until the end of this year to reduce the time for tax payment by 200 hours. In other words, excluding the time for social insurance payment (335 hours), the 537 hours for tax payment must be brought down to 337 hours (down 38%). If achieved, this amount would still be two times higher than the ASEAN average (171 hours). The Prime Minister has also requested the time for tax payment be reduced to the regional average by 2015.
In such a short time, given the numerous tax payment guidelines, with some overlapping each other and some even going against the rules, plus complicated tax collection methods and the difficulty in repeal of issued legal documents, could tax authorities achieve their own goals?
Corruption: the biggest problem
In fact, the Prime Minister’s top priority at his meeting with tax authorities on July 9 was not to reduce the time for tax payment, which is just one step in the overall process of taxation reform. The overarching task stressed by the Prime Minister is to reform taxation personnel in an attempt to get rid of corruption. To change the way taxes are collected, taxmen have to change first.
However, it seems that for tax authorities, combating corruption is not the first priority. One point proving this is that the General Department of Taxation put the response to petitions and denunciations submitted by businesses and the fight against corruption down to the end of the list of its objectives (according to the general department’s report on its performance in the first six months and the tasks for the rest of the year).
Moreover, to modernize taxation and reduce corruption, automated systems for tax declaration and tax payment must be promoted so that they will gradually replace taxmen in dealing with taxpayers. However, the number of tax officers is actually rising, and not much has been done for taxation modernization. The General Department of Taxation said the accumulated tax payments through the banking system has totaled more than VND90 trillion as of the end of this June. Electronic tax payment has just been piloted in Hanoi, Vinh Phuc and Bac Ninh with more than 200 corporate applicants and VND115 billion collected. Otherwise, it is only online tax declaration. That means many steps in tax payments are carried out manually, requiring taxmen to engage directly with businesses, which results in hefty costs and less transparency.
(By Lan Nhi)