HCM City-based electronics retailer Nguyen Kim has been asked to pay nearly VND150 billion (US$6.42 million) in fines and tax arrears after it was found to have been improperly manipulating the amount of personal income tax its employees had to pay over the past 10 years.

The whopping sum includes VND104.74 billion (US$4.5 million) in personal income tax arrears, a VND19.41 billion fine for administrative violations and another VND24.18 billion penalty for late tax payment, according to the HCM City tax department.

The city’s taxman launched an inspection into Nguyen Kim, in which Thailand-based Central Group holds a 49 per cent stake, on May 28 and announced the results on June 29.

Last year, the employees of Nguyen Kim authorised the company to settle the tax bill but Nguyen Kim dodged the payment of personal income tax for its executives and employees by shifting its employees’ salaries and bonuses to allowances and overtime payments.

Under the Vietnamese personal income tax law, the disparity between overtime pay and regular pay is considered non-taxable income.

By applying this trick, Nguyen Kim could significantly reduce the amount of tax its employees paid, especially the highly-compensated employees.

For example, while a person of a particular department at Nguyen Kim is actually paid VND50 million per month, the company prepared income tax returns on a basic wage of just VND12 million. The remaining VND38 million ($1,674) was counted as overtime pay, which generated much lower taxable income.

The quarterly and annual bonuses of employees were also converted into overtime pay in the same act of tax trickery.

Nguyen Kim has a large number of employees, including nine general directors and deputy general directors, and 36 store directors.

Dinh Trong Thinh, an Associate Professor from the Institute of Finance, told Viet Nam News Agency that personal income taxes were vimposed on individuals, not on corporations.

However, in Viet Nam and some other countries, the employers are required to represent and complete the tax closure for their employees, Thinh said.

“In recent years, there is a common phenomenon that many Vietnamese enterprises often hide earnings of their highly-paid officials,” said Thinh.

He added that firms often try to divide their employees’ income into different small parts and count them as allowances that are not subject to tax, which can be regarded as an act of deliberately evading taxes. When the tax authorities discover the violation, they should recover the tax arrears and also ask violators to pay a fine. Thinh added the current fine levels set by Vietnamese law are still relatively low compared to those in other countries, such as 300 per cent of the value of the tax dodge in China and 100 to 150 per cent in the US.

Lawyer Nguyen Thanh Ha, head of the Ha Noi-based SBLAW Law Firm, said that the amount of VND150 billion in tax fines imposed on Nguyen Kim is a relatively large amount of money.

Legally, if Nguyen Kim disagrees with the sanction, the firm can file complaints to authorities at a higher level, meaning the General Department of Taxation, as well as can initiate lawsuits in administrative court if they see such a penalty as unreasonable.

“This is Nguyen Kim’s right to protect his legitimate rights and interests,” Ha said.

Other companies should learn a lesson from Nguyen Kim case, such as the need for a large firm to better coordinate with the tax authorities. Instead of ignoring the problems in tax closure procedures for many years, businesses should cooperate with tax inspectors so that if businesses have any problems or mistakes, tax authorities can point them out and firms can adjust

At that stage, penalties for any violations found are much smaller, Ha said.

False declaration

Le Duy Minh, deputy head of the HCM City tax department, told dantri.com.vn online newspaper that Nguyen Kim’s violation was merely to falsely declare personal income taxes for its employees rather than deliberately evading taxes.

“All their income is legitimately recorded in the accounting books. Therefore, the electronics store chain is not subject to criminal prosecution,” he said.

Nguyen Kim has 10 business days to clear the hefty VND150 billion fines and back taxes, starting from June 29 when the municipal tax department issued the sanction decision.

The company has called on the General Department of Taxation and the Ministry of Finance to look into the case.

Central Group, the owner of Nguyen Kim, has not yet responded or given any comments on the incident at the time of publication. The deadline for the firm to repay the fines and backtaxes is Friday, July 13.

Nguyen Kim is headquartered on Tran Hung Dao Street, District 1, HCM City.— VNS