VietNamNet Bridge - Millions of US dollars in value-added tax have been refunded to firms though only 1 percent of their refund applications have been scrutinised, while tax evaders are let off scot-free.

There are so many applications for VAT refund from firms that make products for export that the tax agencies and their small number of employees are overwhelmed.

They do not even check them, simply paying out the refunds as long as all the documents are received.

Woogwang Vina Co based in Ho Chi Minh City’s Hoc Mon District, for instance, has so far been refunded 19 times though its documents have never been scrutinised.

Even its tax reports have not been verified since 2003.

Orange Fashion Company has reported losses of VND53 billion (US$265 million) in its five years of operation but has received refunds of VND71 billion on 17 occasions without its documents being scrutinised.

Transfer pricing

The Vietnamese tax authorities do not verify the transfer pricing reported by foreign firms though there are many signs they buy materials from their parent companies abroad at high prices and export products to them at low prices, thus showing lower profit margins.

In many cases, firms’ losses exceed their capital but they do not file for bankruptcy.

The Law on Bankruptcy does not stipulate sanctions against such firms, emboldening them to continue to report losses even while expanding their business.

Nguyen Trong Hanh, deputy head of the Ho Chi Minh City Department of Tax, said the concept of transfer pricing is merely mentioned in the Law on Foreign Investment in 1996.

Normative legal documents do not spell out the procedures and measures to deal with it, he said.

The sanctions for failure to do so are not deterrent enough to force firms to correctly report their numbers, he added.

But with the market being governed by the law of supply and demand, firms are free to set their selling and buying prices and tax officials do not have the right to intervene.

Since their financial statements are attested by auditors and are ostensibly above board, tax officials cannot find evidence against them.

A taxation official said one firm bought used machinery made in China but its books indicated a purchase price equal to that of brand new machinery made in Japan.

Tax authorities could not take any action because the firm had the purchase papers in order, he said.

Hanh said the Government needs to regulate transfer pricing and establish an agency to monitor it.

Strangely, tax agencies do not make public the list of loss-making firms. This is unfair towards other companies who eye business partnerships with some of them.

Source: SGGP