Dealing with outstanding tax debts: Finding a "special remedy"

(Baonghean) - By February 2014, tax arrears throughout the province had exceeded 886 billion VND, including 460 billion VND owed by the Tax Department's Office and 426 billion VND owed by the local tax offices. Many tax offices have large tax debts, such as the Vinh, Nam Dan, Quynh Luu, and Hoang Mai tax offices... Without strong measures, tax arrears are projected to increase further.

Tax debt is increasing.

We visited Tien Luc Construction Joint Stock Company (Vinh City) – the company currently at the bottom of the list for outstanding tax debts at the Vinh Tax Department, with 3.2 billion VND. The company's director, Mr. Le Trung Chinh, explained: Of that amount, only 1.8 billion VND is principal, but the penalty has increased due to a lack of funds to pay the taxes. In 2013, the company paid no taxes at all, but in 2012 it paid 2.6 billion VND in taxes. This indicates the company had high revenue. Regarding the 2013 tax non-payment, Mr. Le Trung Chinh stated: The company's customers still owe over 20 billion VND, so the company doesn't have the money to pay taxes. In 2014, they will urge customers to collect their outstanding debts so they can pay taxes to the State.

Officials from the Vinh Tax Department are discussing tax arrears with officials from Tien Luc Co., Ltd.

Also in the construction industry and facing tax arrears, Vinh Hop Co., Ltd. in Vinh City currently owes 631 million VND in taxes, including 130 million VND in fines. From 2013 to the present, the company has not paid any taxes, only 2 million VND for its business license. Analysis of the company's financial statements shows that it has received 5 billion VND in advance from construction projects, but has not yet paid all the taxes on that revenue. Mr. Tran Duy Doat, the company's director, explained that despite being the director, he still has to travel by motorbike to Que Phong to work on projects, facing many hardships, and that the investors owe a lot of money. However, according to officials from the Vinh Tax Department, the company is showing signs of delaying tax payments. Since value-added tax is an indirect tax, the company only pays it on behalf of its clients; therefore, if the company fails to pay in the future, the Tax Department will suspend its invoices.

The Veterans Medical Clinic in Vinh City is one of the units with persistent tax arrears.

An Chau Paper Manufacturing Company, which owes over 3 billion VND in taxes, sadly, this debt has been accumulating since 2002. Upon visiting the company, one is struck by the sight of an old, dilapidated factory that has not been upgraded or renovated, and a production line of Chinese origin that was invested in a long time ago. The company's reports show losses of billions of VND every year. For example, in 2012, the company lost 1.3 billion VND, mainly due to interest payments on bank loans of 1.362 billion VND, in addition to unsold goods and inventory buildup. What is puzzling is why, despite these losses, the company continues to produce and achieve relatively high sales figures (in 2012, the company achieved revenue of 8.88 billion VND). It is unclear when this company will be able to pay off its tax debt. Recently, the company submitted a petition to the Vinh Tax Department requesting maximum support to maintain its operations. The Vinh Tax Department has repeatedly invited the company to make a commitment to pay taxes, and the company committed to paying 50 million VND per month, but that amount only covers fines and newly incurred taxes. Therefore, the old debt remains outstanding.

As of February 28, 2014, tax arrears in Vinh City totaled VND 196.933 million, with the amount increasing rapidly each month. One of the reasons for this high level of debt at the tax office is the lax management of principal debt from previous years. Many long-standing debts remain unaddressed, and some businesses have persistent debts without effective collection measures. For example, the Veterans' Multi-Specialty Medical Clinic (Vinh City) has been in arrears on VND 383 million in taxes for many years. According to the doctors there, the clinic is a joint venture with another company, but the company has refused to pay these taxes. When contacted, we were told that "the director is away." The Green Environment Waste Processing Technology Joint Stock Company in Dong Vinh, Vinh City, currently owes 1.69 billion VND in taxes despite still processing waste. Huong Tra Joint Stock Company owes 1.17 billion VND, Dai Hue Cooperative owes 2.1 billion VND, Phuoc Thuy Private Enterprise owes 1.3 billion VND, Son Ha Private Enterprise owes 1.2 billion VND, and 747 Construction and Trading Joint Stock Company owes 1.4 billion VND... According to a report from the Vinh Tax Department, nearly 20 businesses owe over 1 billion VND in taxes, and hundreds of businesses have outstanding tax debts for more than 90 days. Some businesses have changed their addresses without notifying the authorities.

In 2013, the Vinh Tax Department implemented measures to expedite tax debt collection and enforce tax debt recovery, collecting 22.6% of the total collectible debt as of December 31, 2013, amounting to 34 billion VND. Of this, 23 billion VND was collected through debt management measures and 11 billion VND through tax debt enforcement measures. However, tax debt remains a significant burden for the Vinh Tax Department. According to Mr. Hoang Pham Quang, Head of the Debt Management and Enforcement Team, the rapid increase in tax debt at the Vinh Tax Department is due to changes in government policies such as reductions, deferrals, extensions, and quarterly declarations. While old debts are collected, new debts arise. The economic downturn has resulted in low business efficiency, and banks are tightening lending, making it difficult for businesses to access capital for expansion and production. Construction businesses have not received full investment capital from the state budget, leading to large and prolonged tax debts. Furthermore, due to the Lunar New Year holiday, businesses focused their funds on paying salaries and bonuses to workers and covering holiday expenses, leaving them with no money to pay their tax debts. Commercial banks intensified efforts to recover loans, resulting in a shortage of cash in the market. While businesses were subject to enforcement through their accounts, banks consistently prioritized the repayment of overdue loans over taxes.

Currently, besides the Vinh Tax Department, several other tax departments also have large outstanding tax debts, such as Nam Dan with 16 billion VND, Hoang Mai with over 20 billion VND, Quynh Luu with 18.7 billion VND, and Thai Hoa Town with 17.9 billion VND. According to the Provincial Tax Department, the total tax debt in the province as of February 28, 2013, was over 886 billion VND, an increase of 77% compared to January 2014. One of the most obvious manifestations is that large businesses also have large debts, making collection very difficult. While small and medium-sized enterprises are regularly urged to pay their tax debts, frequently receive notices inviting them to work with the tax authorities, and are more easily subject to debt enforcement measures, large businesses still lack strong measures to "cure" the "tax debt" problem. Leading the list of businesses with large tax debts are real estate companies such as Vietnam-Laos Investment and Economic Cooperation Corporation (owing 29 billion VND), Vinaconex 16 Construction Joint Stock Company (owing 13 billion VND), Construction Company No. 9.1 (owing 12 billion VND), PetroVietnam Construction Corporation (owing 14 billion VND), Minh Khang - Thanh An Minh Investment and Trading Company Branch (owing 4.9 billion VND), Hanoi Housing Development Investment Joint Stock Company (owing 10.7 billion VND)... Following these are construction companies such as Phu Nguyen Hai (owing 2.1 billion VND), Bach Viet Company (owing 1.5 billion VND), Sea Road Dredging and Construction Joint Stock Company II (owing 4.7 billion VND), Central Vietnam Transportation and Trade Construction Joint Stock Company (owing 4.9 billion VND)...

Although the Tax Department has published a list of businesses with large outstanding debts in the media, these businesses seem to remain unfazed. Some businesses sell land and lease premises for profit, misappropriating employees' salaries and insurance contributions without paying taxes; others, despite customers having paid the developer for land purchases, still persistently owe land use fees to the State for many years. In addition to guiding taxpayers through procedures for tax extensions, exemptions, and reductions, the Tax Department has also intensified tax debt collection through various measures. Many of these measures have proven effective, such as inviting businesses to meetings; The tax department has imposed penalties for late payment, issued enforcement decisions to collect tax debts through measures such as deducting money from taxpayers' bank accounts, seizing assets, collecting debts through third parties, and declaring invoices invalid. The department has also coordinated with several functional agencies to investigate tax arrears and prosecuted some entities; however, many businesses with large debts have been unable to pay. Some businesses are uncooperative and frequently absent when tax officials visit.

Limitations in debt management

Regarding tax debt collection and management, leaders of tax offices stated that the process of collecting, verifying, and checking information to determine the honesty and legality of taxpayers' assets in order to apply enforcement measures still faces many difficulties. The process of collecting, verifying, and checking information through the steps to implement an enforcement measure is laborious, time-consuming, and costly. This is especially true with the changes to the Tax Administration Law that came into effect on July 1, 2013. Coordination with organizations and banks to provide account information when an enforcement decision is issued is slow, and most assets are already mortgaged to banks, making it difficult to sell the seized assets to collect revenue for the state budget after seizure. For example, currently, Construction Company 757, located at 161/01 Truong Chinh Street, Le Loi Ward, City... Vinh (Tax ID 290057231) is being forced to pay its tax debt by the Vinh Tax Department, but selling assets to recover the debt is very difficult and involves many procedures.

When new debts are collected, old debts accumulate, leading to a significant increase in tax debt. The regulation allowing some businesses to file tax returns every three months also contributes to debt growth because businesses fail to pay taxes at the beginning of each new quarter, resulting in a surge in new debt. Coordination in debt collection between departments is not smooth, especially between tax inspection teams and debt management and enforcement teams.

Another reason for the rapid increase in tax arrears is that many businesses failed to pay their VAT tax due in 2013; many construction companies facing capital difficulties requested extensions, but their applications were incomplete according to regulations and therefore were not processed. At the Vinh Tax Office, debts that have been outstanding for over 5 or 10 years, and some businesses requesting debt forgiveness, have had their applications lost, incomplete, or lacking the necessary legal basis for debt write-off or debt restructuring, and these requests have not been processed.

Debt collection is a difficult task. While annual targets for debt collection are assigned to each tax officer and team, these targets haven't been linked to performance evaluations, rewards, or monthly/quarterly salary reviews. Mr. Tran Dinh Thanh, Deputy Head of the Nam Dan Tax Department, stated: Nam Dan currently has 16 billion VND in outstanding tax debt. A key limitation in tax collection is the lack of strong coordination between the tax authorities and local departments and agencies, and the insufficient commitment of the tax teams. In the coming period, the Nam Dan Tax Department is advising the district to establish a Steering Committee for Debt Collection and Anti-Tax Evasion, while also continuing to classify debts, establish inspection teams, and enforce debt collection.

The quality of debt management, including the amount and age of debts, has been neglected by tax teams, leading to a number of outstanding debts that are not being followed up on. Some measures implemented by local tax offices, such as notifying local authorities or using loudspeakers in the areas where businesses are headquartered, have not been carried out. Bad debts are increasing too rapidly, and the most difficult and problematic issues are businesses that have ceased operations, stopped trading, or abandoned their business activities in violation of the Enterprise Law, yet still have large debts and carry invoices with them.

The high level of debt is also due to the fact that some departments and tax offices have not thoroughly implemented debt management and tax debt enforcement measures. The tax offices in Quy Chau, Yen Thanh, Anh Son, and Con Cuong have implemented very few enforcement measures against those who need to be enforced.

Tax debt collection will be ineffective without the involvement of local authorities and relevant departments. In reality, localities, districts, and towns where coordination is close and decisive tend to have low tax debts. Conversely, areas lacking the involvement of the government and relevant departments, coupled with a lack of decisiveness and concern from local tax office leaders in implementing the measures assigned by the Department, see their debts steadily increase.

Although some argue that many businesses are currently struggling, with assets mortgaged to banks and unpaid wages to employees, thus unable to pay taxes, it is clear that with accurate information, a firm grasp of revenue sources, and increased inspections at businesses, more tax revenue can still be collected than the newly incurred amount. The reality is that many businesses have not been audited or inspected for three years. Furthermore, to address the aforementioned shortcomings, the tax authorities must implement strong sanctions for debt collection to progress.

Text and photos:Chau Lan