July 14, 2020 13:46

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Clear legal gap to remove tax debt

16:17 | 07/09/2019

VCN - For many years, bad tax debt has been an important issue for the entire tax sector. Tax debt has continuously increased over the years, although the tax sector is still looking for solutions to control it. Therefore, the Resolution on dealing with tax debt is expected to remove this bottleneck, ensuring more effective budget collection and debt management.

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Tax authorities are spending a lot of time and human resources on the management of irrecoverable tax debt. Photo: Thuy Linh.

Tax debt increases due to late payment

The draft Resolution on tax debt settlement (latest version) includes eight articles and regulations on handling tax debt for taxpayers who are unable to pay the state budget, including taxes, fines for late payment, late payment interest and fines for administrative violations in the field of tax and customs arising before the new Tax Administration Law 2019 comes into effect on July 1, 2020.

Specifically, the draft resolution proposes to classify debt and only clear fines for late payment, tax payment for seven groups of subjects (taxpayers are dead, missing, lost civil act capacity, went bankrupt, dissolved, terminated business, did not operate at the registered business address, and has business registration revoked).

In order to limit budget losses in the implementation, the draft Resolution clearly stipulates the principle and authority of debt removal, the regulations on debt settlement and the responsibilities of concerned agencies in the performance of official duties. According to the draft, if passed, the Resolution is expected to take effect from January 1, 2020 and be implemented for three years.

According to the General Department of Taxation, by December 31, 2018, the outstanding tax debt was 81,618 billion VND, an increase of 4% compared to a year earlier. Of which, bad debt accounts for 41,387 billion VND, or 50.7% of total tax debt.

Nguyen The Manh, Deputy General Director of the General Department of Taxation, said 2,635 taxpayers have died, gone missing or lost civil act capacity with a tax debt of 460 billion VND (including fines for late payment of 174 billion VND). Up to 24,113 enterprises have dissolved but failed to conduct procedures for dissolution with outstanding debts of 2,072 billion VND (including fines for late payment of 869 billion VND).

In addition, there are 216 enterprises that are insolvent and bankrupt but failed to comply with bankruptcy procedures as prescribed with tax of 398 billion VND (including fines for late payment of 158 billion VND). Notably, 731,696 taxpayers (including 197,336 businesses, 534,360 households and individuals) removed business addresses and did not operate at their registered business addresses or had their business registration certificate withdrawn with a tax debt of 23,889 billion VND (including fines for late payment of 9,360 billion VND).

The General Department of Taxation's statistics also show that there are 229 taxpayers with tax debt of 1,487 billion VND (including fines for late payment of 852 billion VND). These taxpayers have been hit by natural disasters, fires, epidemics, or unexpected accidents, causing difficulties in production and business. The taxpayer has complied with the law and made an effort to pay taxes, the tax authority has implemented tax collection management measures as prescribed, however, due to difficulties, the taxpayers still owe fines for late payment and are incapable of paying to the state budget. As many as 430 taxpayers supplying goods and services were paid with state budget capital but have not yet been paid, so there is no timely payment, resulting in the arising tax amount of 986 billion VND (including fines for late payment and late payment interest of 481 billion VND).

According to Mai Son, Director of Hanoi Tax Department – the unit with the highest tax debt nationwide – the bad debt increased partly due to the increase in the principal, due to taxpayers giving up their business addresses without reporting to tax offices. The group of doubtful debts is mainly due to taxpayers who are no longer operating but not reporting to tax offices (accounting for 85% of the total bad debts). At the same time, the increase in doubtful debts was mainly due to the increase in late payment fines.

According to calculations, the growth rate of the original debt is 129%, while the growth rate of late payments is 260%. The reason is mainly due to the current Law on Tax Administration stipulating that the late payment interest rate is 0.03% per day on the amount payable. According to Mr. Mai Son, the amount of late payment interest from the doubtful group at the Hanoi Tax Department alone reaches nearly 500 billion VND per year. By the end of July 2019, the amount of late payment of the group reached 3,399 billion VND.

"Although it is very necessary, the regulation causes late payment debts to increase and account for an increasing proportion of the debt structure over the years,” the Director of Hanoi Department of Taxation said.

Causing difficulties for management

In recent years, the tax sector has made continuous efforts to manage debt. However, due to many reasons, doubtful tax debt is rising. In fact, the increase of bad debts has constrained the rate of tax debt reduction of the tax sector because they are unable to recover these debts, but in accordance with law, it has to monitor and calculate the late payment interest of these debts. This takes up a lot of time and effort for the tax sector, creating an imbalance in the revenue structure of the tax industry.

Le Duy Minh, Deputy Director of Ho Chi Minh City Tax Department, also said that easy business registration is one of the reasons why the number of businesses increased rapidly. However, many businesses were established for other reasons, such as helping their children to study abroad. In addition, some units faced difficulties due to high interest rates of banks, sometimes reaching over 20%, pushing up the number of enterprises which are unable to pay tax debts and leave their business addresses. In Ho Chi Minh City alone, there have been 233,000 such cases. These are debts left over, making it difficult for businesses as well as management.

Mai Son affirmed that the National Assembly's promulgation of a Resolution on handling tax debts of taxpayers unable to pay is extremely necessary. It will create a mechanism to handle tax debts and late payments that have existed for a long time which are impossible to recover, but tax agencies at all levels still have to monitor, manage and waste human resources.

“The National Assembly approved the Tax Administration Law No. 38/2019/QH14 set to take effect in July 2020, which has provisions for handling doubtful debts (Article 83, 85, 59). However, these regulations are applicable to taxpayers arising from July 1, 2020 onward. Therefore, the issuance of a resolution to handle debts arising before July 1, 2020 is necessary, ensuring a comprehensive and thorough settlement of debts which are no longer recoverable,” said Mr. Mai Son.

Ms. Nguyen Van Chi, Standing Member of National Assembly's Committee of Finance and Budget:

The promulgation of a Resolution of the National Assembly on handling tax debts for taxpayers who are unable to pay tax debt in combination with the Law on Tax Administration 2019 will form a unified whole, creating favorable conditions for both tax authorities and businesses. The resolution only allows to freeze debt and still manages the original debt, avoiding the situation that the businesses leave the registered address with the tax office and move to another one. At the same time, limiting fines for late payment of tax debts has become bigger, creating a burden for the tax offices.

According to the draft resolution of the National Assembly, the Resolution takes effect from January 1, 2020 while the Tax Administration Law 2019 takes effect from July 1, 2020, so there will be a legal gap. Therefore, the drafting committee should have similar handling plans to avoid abuse. Particularly for debt related to land, it is necessary to consider not freezing.

Mr. Mai Hong Hai, General Director of Hai Phong Cement Company – member of the Hai Phong National Assembly delegation:

The Tax Administration Law 2019 has provisions for tax debt clearance but is not retroactive, so there is still a gap in tax law. Therefore, the issuance of the Resolution to handle tax debts that cannot be collected is necessary. However, the responsibility of the authorities must be attached to cases where businesses leave their business addresses under its management, causing budget losses.

By Thuy Linh/ Kieu Oanh