VCN - Evasion and avoidance of income tax is a particularly common phenomenon in the world, including in Vietnam. Therefore, in order to combat the loss of state budget revenues, tax administration agencies have been taking drastic measures to ensure the full collection for the state budget.
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Continuing to expand business but still incurring losses
According to the statistics of the Institute for Economic and Policy Research (VERP), the average estimate for the period of 2013 - 2017, the rate of tax losses due to evasion and tax avoidance each year fluctuated around VND 13.3 - 20.7 trillion (equivalent to 6.4 to 9.9% of corporate income tax revenue). These figures are about three to four times higher than the number of violations detected by regulatory agencies every year. In particular, the annual revenue loss from the FDI sector can reach VND8,000–9,000 billion (4–4.5% of corporate income tax revenue), while from the non-state sector can reach VND 10.5 trillion (5% of corporate income tax revenue).
In fact, the tax incentive policy, especially the preferential corporate income tax policy, has contributed to promoting economic restructuring towards modernization and promoting the comparative advantages of the country. Besides large state-owned economic groups, there have been more private enterprises and large FDI enterprises in the country. Many well-known big corporations in the world have invested in Vietnam, such as Samsung, Toyota, Honda, and Mitsubishi.FDI enterprises have made important contributions to foreign trade activities. Export turnover of the FDI sector accounts for an increasing proportion of the country's total export turnover.
According to Assoc.Prof. Dr. Le Xuan Truong, Dean of the Department of Taxation and Customs, the Academy of Finance, the tax incentive policy has revealed some disadvantages and inadequacies that need to be adjusted to better serve national socio-economic development. The high level of incentives, the wide range of incentives (especially corporate income tax incentives) reduces the state budget revenue while the state budget is insufficient to meet the demand of socio-economic development. The integration of social policies into corporate income tax incentives makes the tax policy more complicated and difficult to manage. This has created favorable conditions for fraud, especially among FDI enterprises.
“It is no coincidence that in the period of 2015 - 2017, about 50% of FDI enterprises operating in Vietnam reported losses, many of which reported losses for many years. Despite declaring continuous losses, many businesses continue to expand their production and business. In fact, the Tax Inspectorate has demonstrated the price fraudbehavior of some FDI enterprises with arrears amounting to hundreds of billions of dong. For example, Vietnam has collected from Metro Vietnam VND507 billion and Hualon Corporation Vietnam VND78.1 billion,"Assoc. Prof. Dr. Le Xuan Truong said.
Strengthening inspection to prevent tax evasion and price fraud
To combat tax evasion, Vietnam has been making positive changes related to tax laws to integrate more deeply into the regional and world economy, improve the fair competitive environment and avoid tax losses. In the past, the tax industry has developed many tax administration measures, intensified inspection, examination and handling of violations, especially taking advantage of transfer pricing to evade taxes.
The General Department of Taxation’s statistics show that during the 2010 – 2018 period, through inspection and examination activities, tax agencies at all levels have detected over 642,400 cases of enterprises violating enterprise income tax with violated money was over VND35.9 trillion, down from a loss of VND185 trillion.
In 2019, the tax agency conducted about 96,200 inspections directly at enterprises and more than 517,500 tax records of enterprises at tax offices proposing to handle VND64.5 trillion, thereby increasing the state budget's revenue by VND18.8 trillion. It’s remarkable that inspection and examination alone, 579 enterprises had associated transactions, the tax office had collectedand fined VND1,164 billion; reduce a loss of VND5,854 billion.
According to the General Department of Taxation, the tax agency has based on practical experience for decades, combined with the application of information technology and the set of risk assessment criteria, reviewing businesses with high tax risks, focusing on business lines, risk areas, new business lines, enterprises with associated transactions and signs of price fraud; enterprises suffering losses for many consecutive years, large tax reimbursement dossiers are used to formulate inspection and examination plans, and strive to conduct at least 19% of inspections of enterprises.
In addition to inspecting and checking transfer pricing, the tax authorities have just conducted comprehensive inspections by subjects to assess the observance of tax law, organize inspections at the same time as in-depth inspections of each key industry and area.
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At present, the planning of tax inspection and examination by the tax authorities is done by the risk management method. Therefore, businesses with high tax risks will be included in the plan and carry out inspections.