Perspectives on tax debt

(Baonghean) - Tax arrears are quite alarming in Nghe An province. While budget revenue for the first six months of 2014 reached 3,024 billion VND, equivalent to 55% of the plan, tax arrears amounted to 870 billion VND. Besides businesses facing difficulties, ceasing operations, absconding, or dissolving, there are still subjective limitations stemming from both local and policy factors. Tax arrears have not yet been brought under control.

Not fulfilling responsibilities

The Vinh Tax Department has the largest tax debt among all localities in the province. As of June 30, 2014, the tax debt amounted to VND 204.7 billion, an increase of VND 34 billion compared to December 31, 2013, accounting for approximately one-quarter of the province's total tax debt. According to the Vinh Tax Department's leadership, the increase in tax debt is due to changes in government policies, such as quarterly VAT declarations, resulting in quarterly tax liabilities. The economic downturn has led to low business efficiency, and banks have tightened lending, leaving businesses without sufficient funds for investment, expansion, and capital turnover. Some businesses are operating at a loss, leading to prolonged and uncollectible debts. Businesses in the construction sector have not yet received investment capital from the state budget, resulting in large and prolonged tax debts. Meanwhile, because the business address changes location without updating the listing code or adding it to the business license, it is difficult to contact, follow up, and enforce compliance.

Receiving and processing requests from citizens and businesses at the Nghe An Tax Department. Photo: Mai Hoa.

However, it can be seen that one of the reasons for the high increase in tax debt is the low debt collection rate achieved by individual tax collection officers in the ward and commune teams. In the inter-ward/commune tax team No. 4 in Ha Huy Tap, Hung Dong, Nghi Kim, and Nghi An wards, most individuals failed to meet their debt collection targets in June 2014. The highest collection rate was only 78%, while most achieved between 61% and 65%, with an average of 64%. In the Vinh Market Tax Team, the tax collection rate in June 2014 only reached 56% of the target, while the collection of outstanding debts reached 75%. In the inter-ward/commune tax team of Hong Son, Le Mao, and Vinh Tan, the debt collection rate for each officer was the highest, but still only 88%, and the amount of outstanding debt in this team increased each month.

According to Mr. Hoang Pham Quang – Team Leader of the Tax Debt Management Team of the Vinh City Tax Department: “The Department has assigned debt collection targets to each officer and employee. Those who achieve 90-100% are rated A and receive their full salary, those who achieve 70-90% are rated B, and those below 70% are rated C. Those rated B and C will have their salaries deducted. Therefore, comparing the debt collection results of the Vinh City Tax Department's officers and employees, it seems that most will have their salaries deducted. However, in reality, no one has had their salary deducted; the monthly and quarterly budget collection results of the employees are the basis for year-end performance evaluations.”

The sense of responsibility, dedication, and competitive spirit of tax officials in completing their tasks at the grassroots level will determine the increase or decrease in tax arrears at the district tax offices. If tax collection officers vigorously monitor and collect all outstanding debts without favoritism towards businesses and households; promptly implement effective debt management solutions; and monitor businesses with long-standing or increasing debts, the rate of businesses absconding will not increase as much. The six-month tax summary report of the Vinh Tax Office acknowledges: "Although we have fully implemented tax debt management and enforcement procedures, the amount of debt is increasing due to the inability to control newly arising debts and penalties for late payment."

Officials from the Vinh City Tax Department are working with Tien Luc Co., Ltd. regarding outstanding tax debts.

After more than six months, by June 30, 2014, the entire Vinh Tax Department had implemented measures to urge and enforce tax debt collection, recovering 49% of the total outstanding tax debt from 2013, amounting to 73,750 million VND. The Department also collected over 40 billion VND in new debts in 2014. Thus, it is easy to see that a large amount of debt remains uncollectible, especially debts from 2013 and earlier. This tax debt is causing difficulties in the Department's management and operations and may affect its tax collection efforts.

Meanwhile, at the Hoang Mai Tax Sub-Department, the outstanding tax debt currently stands at 36.1 billion VND. The reason given is the lack of a proper office; all staff are currently working in the hallway of the Hoang Mai branch of the Agricultural and Rural Development Bank, in cramped, hot conditions with no rest areas, affecting work efficiency. According to Ngo Gia Tinh, Head of the Hoang Mai Tax Sub-Department, staff only arrive at 8 am and leave by 4 pm. Furthermore, the computer network and electricity systems in Hoang Mai are unstable, especially the data transmission connection to the sub-department, which is always slow. Poor handover between the two sub-departments has led to numerous problems, such as organizing the re-declaration of tax documents for 21,000 households using non-agricultural land, entering tax documents from 2012, inaccurate debt tracking, and the failure to finalize invoice usage in Quynh Luu, resulting in the inability to enter issuance notices.

It was this sense of responsibility in their work, coupled with the "burden" left behind by the previous boss, that made tax collection in Hoang Mai extremely difficult.

Large tax debts from tycoons

"Big players" and "debtors" always go hand in hand in the tax debt landscape of Nghe An province. 120 relatively large businesses in the area account for half of the total debt, approximately 400 billion VND. The businesses with the debt are mainly involved in real estate and construction. Leading the list are Vietnam-Laos Investment and Cooperation Corporation (30.4 billion VND), PetroVietnam Construction Corporation (22 billion VND), Investment and Construction Company No. 24 (17.5 billion VND), Nghe An Bridge and Road Construction Company (15 billion VND), Vinaconex Construction Company No. 16 (15.4 billion VND), Construction Company No. 9.1 (10.1 billion VND), Hoang Mai Industrial Park Investment and Construction Company (14.2 billion VND), and Central Vietnam Construction and Consulting Company (14 billion VND)... There are 85 companies with tax debts of 1 billion VND or more. The debt is increasing and difficult to fully repay due to late payment penalties. Many businesses have been notified that their invoices are no longer valid. Ms. Dinh Thi Thuy Anh, Head of the Tax Debt Management Department of the Nghe An Tax Department, said: "When an invoice is declared invalid, it means a 'dead end,' and businesses will have no way out because, according to regulations, the notification is valid for one year. If a business is inactive for a year, it's considered 'dead.' Therefore, the Tax Department is very cautious when applying this measure; it should not be applied to businesses that are currently operating, in order to give them a chance to continue their business and repay their debts."

Many businesses are showing defiance, procrastination, lack of cooperation, and indifference to what the Tax Department will do about their tax debt. One of the biggest concerns for the Tax Department is that many companies from other provinces, especially those with large debts, have their headquarters and directors located elsewhere, making tax collection very difficult. Furthermore, during the process of notifying businesses to stop using invoices and enforcing tax debt collection, the Tax Department also encounters "interference from above" to allow businesses to continue... owing money.

Experience of Do Luong

The Do Luong Tax Sub-department has a relatively large revenue collection volume in the area, but very little tax arrears. In the first six months of 2014, the Do Luong Tax Sub-department collected 54.579 billion VND out of a planned 73.6 billion VND, equivalent to 74.2% of the legally mandated budget. This is a very encouraging result in the current difficult context. Tax arrears in the area amounted to only 7.8 billion VND, a "modest" amount compared to the arrears in some other sub-departments such as Hung Nguyen (16.5 billion VND), Hoang Mai Town (26.1 billion VND), Nam Dan (17.3 billion VND), Nghi Loc (17.2 billion VND), Dien Chau (17.3 billion VND), and Thai Hoa Town (15.5 billion VND)...

In a conversation with the Head of the Do Luong District Tax Department, Mr. Mai Van Dong, it was revealed that the "secret" to success in Do Luong lies in mobilizing the combined strength of the local government and various sectors within the district, thereby creating "power" in tax collection and debt recovery. However, to achieve this, the Tax Department itself must demonstrate its leading and pioneering role, leveraging its intelligence in tax management to achieve the best results. The Do Luong District Tax Department has advised the district to issue the "Project to Combat Tax Loss and Develop Budget Revenue Sources in Do Luong District, 2011-2015".

The Do Luong District Tax Department has implemented numerous solutions, including developing revenue sources and combating tax evasion. The department takes the lead, coordinating with communes and towns to effectively implement tax transparency, actively disseminating information, explaining, and guiding businesses to register, declare, and pay taxes, while also compiling administrative violation records for organizations and individuals violating tax laws. The department also advises the District People's Committee to establish an inter-agency team to inspect business activities of organizations and individuals in the area, resolutely handling businesses operating without business registration licenses and those failing to declare and pay taxes. The coordination between the department and other units, departments, and offices has also yielded high efficiency.

These include: Coordinating with the Finance and Planning Department to compile sales invoices from production and business establishments issued to budget-receiving units, thereby comparing them with the declarations of business establishments to detect violations in the use of sales invoices; coordinating with investors and project management boards (both district and commune levels) to check and compare the registration and tax declarations of contractors for construction projects that have been and are being implemented throughout the district; coordinating with the Department of Natural Resources and Environment to check the legal procedures of organizations and individuals engaged in the exploitation of soil, stone, sand, and gravel, and advising the District People's Committee on issuing directives regarding mineral exploitation. Simultaneously, coordinating with the District Police to investigate, verify, and handle organizations and individuals with signs of tax evasion and commercial fraud in the following areas: basic construction; transportation business; forest product processing; sand and gravel mining, etc.

To "tighten" the flow of funds, the Tax Department has coordinated with banks in the area to monitor the amount of money transferred by organizations and individuals operating businesses in various fields, thereby detecting cases of businesses not declaring taxes or declaring them incompletely or not in a timely manner as required... Fees are an important source of revenue for the budget; to increase this revenue, the Tax Department conducts on-site inspections in communes and towns where fees are collected (ferry fees, market fees, dock fees, etc.) and at the same time effectively carries out the inspection of fee and charge settlements.

Thanks to the smooth and close coordination with other departments in the area, along with the proactive, highly responsible, and dedicated efforts of the head and each tax collection officer, Do Luong has successfully fulfilled its tax collection nhiệm vụ while also effectively controlling tax arrears. Mr. Hoang Quoc Viet – Vice Chairman of the People's Committee of Do Luong District – affirmed: “Achieving high results in budget revenue collection cannot be done by the Tax Department alone; it requires the close involvement of other departments and the District Tax Office.”

Address the gaps promptly.in tax debt collection

Currently, the measure of seizing funds through businesses' bank accounts is stipulated in the law and is a fairly effective solution for collecting tax debts. In discussions with us, bank branches such as Eximbank and Saigon Commercial Joint Stock Bank all stated that they seriously comply with tax authority requests to deduct funds from businesses' accounts when these businesses owe taxes. However, this solution also reveals several shortcomings. The provincial tax department can only inspect and monitor business accounts at banks within the province; accounts at banks in other provinces cannot be monitored, or must rely on the tax departments of those provinces. Providing business account information is done by the businesses themselves; for accurate information, the tax department must verify it.

Even within the province, there are too many banks and bank branches, making it difficult to investigate and track business accounts. According to Mr. Phan Huu Phung, Director of the Saigon Commercial Joint Stock Bank branch, the bank has not yet received a document from the Tax Department coordinating tax debt collection, and is voluntarily undertaking the task. Some private banks may not be enthusiastic about cooperating due to their customers' interests. Although there are regulations for coordination between banks in tax debt collection, in reality, there are still cases where banks let tax debts slip through, or banks, for their own benefit, seize bank loans before considering tax debts. Therefore, many funds received by businesses through banks are not used to pay tax debts but instead used to pay bank loans.

In the enforcement of tax debts, it can be said that there is a lack of decisiveness and effectiveness. Currently, many company branches located in the province owe a significant amount of taxes, but when enforcement is attempted, assets cannot be seized because they belong to the parent company or have been mortgaged to banks...

Mr. Nguyen Hong Hai, Deputy Director of the Nghe An Tax Department, stated: “Currently, the Tax Department is managing over 8,000 businesses engaged in production and trade. Each month, over 1,000 businesses have zero tax declarations, and 228 businesses are in the process of closing their tax identification numbers. As of June 30, 2014, the total tax debt was 835 billion VND. The group of businesses that have disappeared, dissolved, or gone bankrupt owes 83.6 billion VND, debts awaiting processing amount to 29 billion VND, late payment penalties total 168.4 billion VND, and regular receivables amount to 619.3 billion VND. Given this situation with large late payment penalties, the Government has requested provinces to work with businesses with significant debts and large late payment penalties to resolve the issue. The root cause of the debt stems from previous difficult circumstances where the Government allowed businesses to extend tax payment deadlines; in 2011, 136.9 billion VND was extended, in 2012, 282 billion VND was extended, and in 2013, 282 billion VND was extended. "In 2013, they extended the deadline for tax payments to 288 billion VND, but now that the deadline has arrived, they don't have the money to pay because they have already invested in production and business. Nearly 100 real estate projects have been inactive for several years."

The tax debt landscape reveals an unfair disparity between businesses that are granted tax debt extensions and those that are not; between businesses that are delinquent in paying their taxes and those that pay in full. In many units, previously, when the budget collection plan was almost complete, the Tax Department did not diligently pursue tax debt collection, or even neglected it altogether. This is the reason why tax debt in some departments and branches has increased very rapidly.

Based on the tax management experience of Do Luong district, along with addressing the aforementioned shortcomings, tightening labor discipline, enhancing the sense of responsibility of officials, promptly rewarding individuals and sub-departments that perform well, and taking strong disciplinary action against officials who fail to fulfill their responsibilities... these are solutions that contribute to the effective collection of outstanding tax debts. In reality, some districts still consider tax collection solely the responsibility of the Tax Department. Therefore, in addition to the Tax Department needing to enhance its responsibility, other departments and districts must actively participate, immediately resolving difficulties for businesses, and implementing solutions to nurture revenue sources and create favorable conditions for production and business.

Pink Stripes