'Fear of responsibility' prevalent among business staff, authorities when it comes to tax issues

Strong tax reforms have created great advantages for enterprises, but both businesses and tax authorities still face many problems fulfilling their tax obligations due to confusing regulations and the “fear of responsibility", said Nguyen Van Phung, former head of the Bureau of Large Enterprises Management under the Ministry of Finance’s General Department of Taxation.

Recent tax reforms are considered among the most radical economic reforms to be taken in Vietnam. Do you agree?

No other law has gone through such a stringent reform process as the Law on Tax Administration No. 38/2019, creating convenience for both taxpayers and tax administration agencies. The biggest advantages are for the business community, with self-calculation and self-declaration procedures accompanied by a management technology system serving tax declarations, calculations, and payments.

I am a tax payer. With my computer, I can check how much I've paid, where I paid tax, who deducted tax, how much was deducted, how much more I will have to pay at the end of the year, and how much I will get back. Rarely can any state agency do that.

Foreign tax authorities also admire the rapid innovations of the Vietnamese tax sector. One example is tax management of foreign suppliers not present in Vietnam such as Google, Facebook, Netflix and Microsoft. There is now an electronic portal serving foreign suppliers, managing them since March 21, 2022. We have collected more than ten trillion Vietnamese dong (VND1 trillion = $41.2 million) and there will be more in the future.

Second, electronic invoices with internet connections help save costs for businesses, state administrative agencies, public service units that benefit from the state budget, and non-public units. Thanks to that, agencies using the state budget can monitor their revenues and expenditures, purchases and sales of goods, which have long been kept in administrative units and difficult to control. Transactions are also more accurate, and there are no price changes.

Tax procedures and how to determine taxable income remain very complicated, and sometimes regulations can be interpreted in different ways, causing difficulties for businesses. Is this fair to say?

I find this assessment unsatisfactory. But I do not deny the fact that both businesses and tax authorities are encountering problems fulfilling their tax obligations.

There are three reasons. Firstly, the guiding documents and regulations related to taxes are not easy to understand. Regulations can be understood in many different ways. Some show problems when put in place on the online environment.

Secondly, people are scared of making mistakes and are putting safety first, so if regulations are unclear, businesses will ask tax authorities first.

This situation leads to the third phenomenon. There are things that businesses can do, but they are not confident of, so they want the tax authorities to check, thus wasting time. I think it is necessary to raise awareness among businesses. We have a plan to amend some regulations and laws, so I hope these difficulties will be solved.

In many public agencies, the "fear of responsibility" is slowing the decision-making process and causing difficulties for businesses. Do you see this phenomenon among tax authorities?

This is a problem for all state management agencies, not just tax authorities. The common response is to pass the problem up the chain. I think this is a social cost.

What are the biggest tax problems for foreign direct investment (FDI) enterprises? Unclear regulations that can they be interpreted in different ways, cumbersome procedures, or harrassment of tax officials?

The law allows people to self-calculate, self-declare, and self-pay taxes. But managers of FDI enterprises themselves are also employees, so they are very afraid of taking responsibility. Therefore, they often go to the tax authorities to minimize losses and errors.

Therefore, the workload at the tax agencies is increasing. Even if the documents are clear, they still ask, but it is our responsibility to explain regulations to them.

The second issue is that people have the right to act under the law. If we are wrong, they have the right to sue us in arbitration court. More than anyone else, accounting and auditing consulting companies are here to help businesses. Their services help solve many problems for FDI enterprises.

But I confirm there is no harrassment. At this time, no one would dare to cause difficulties for businesses.

In many cases, processes, procedures, inspections, and supervisions help ensure safety for the state, but the responsibility falls on tax officials, who then move it to the businesses. If a process is unreasonable, it must be corrected.

Data from the General Department of Taxation showed that in 2022, about 39% of FDI enterprises reported profits and 54% reported losses, higher than the 50% of domestic businesses. Some said that the figures did not reflect reality because many FDI enterprises might evade taxes through transfer pricing, while the Vietnamese tax authorities did not have enough capacity to detect and handle them. Do you agree?

The Ministry of Finance's report to the Prime Minister on the current operations of FDI enterprises showed that half reported losses. Why? Because accounting profit for reporting is different from taxable income.

Second, there are transfer pricing activities to avoid taxes. When they report business results, we have the responsibility to check to determine whether they are true or not. Therefore, many businesses that report losses still have to pay taxes because according to our law, the report was untrue.

Third, in terms of policy, we have many tax incentives to attract FDI. We fulfill our commitments to investors, but we also require them to declare taxes correctly and seriously.

Vietnam has joined the Organisation for Economic Cooperation and Development’s (OECD) base erosion and profit shifting (BEPS) and will apply the global minimum tax in the time to come. I think when this mechanism comes into practice, the possibility of tax evasion and avoidance will decrease.

In your opinion, when will Vietnam's tax authorities have enough capacity to detect and handle tax evasion through transfer pricing?

Currently, this is difficult. Vietnamese state management agencies, particularly the tax industry, must make more efforts. Our preferential policy is a double-edged sword. Too many generous incentives like before create opportunities for businesses to avoid taxes. But with the global minimum tax, if we impose a 15% tax rate, the difference will be less, and there will be fewer opportunities for them to avoid taxes.