Facing a large amount of outstanding late payments in the taxation and customs branches, the Ministry of Finance (MoF) is working on a draft resolution on handling tax arrears and irrecoverable fines to submit to the National Assembly.

Tax registration at the Ha Noi Tax Department. 

The MoF proposes to freeze tax arrears/debts. This means it would temporarily cease collection of tax and late payment fines for those who have terminated their business activities for more than one year, due to actual dissolution of taxpayers (except for cases for splitting, merger or acquisition), and those who already had their business licence revoked.

The estimated uncollected tax amount of this particular group is now more than VND26.5 trillion ($1.08 billion), making up the majority of total unpaid tax debt of around $1.18 billion.

The Ministry also plans to relinquish late tax fees for taxpayers who were struck by natural disasters, fires, accidents or other force majeure circumstances.

Such exemption only applies to late payments not exceeding the paid value and the suffered damage, which the MoF estimated to be around VND2.24 trillion ($99.7 million) in total, as of the end of 2017.

Nguyen Viet Loi, director of the Institute for Financial Strategy and Policy under the MoF, said that "the ministry’s decision to freeze tax debt in some cases due to force majeure circumstances or objective obstacles is in line with new laws and regulations".

International experience showed that it was appropriate for each country to develop situation-specific policies for debt cancellation, said Loi at a GDT February meeting.

However, in order to ensure that the tax debt remission is implemented in an objective and practical manner, the stipulation of force majeure circumstances should be clearly defined, he added.

Speaking at the same meeting, economist Nguyen Minh Phong said that freezing tax debt arrears was a recurring theme.

The basis for debt relief is enterprises’ ability to comply with the law, but tax arrears elimination also has limitations as it sets a bad precedent for enterprises and creates unfair competition, according to Phong.

Therefore, in order to overcome these shortcomings, administrative criteria and principles for clearing tax arrears, late payment and fines must be clear and justly issued.

In particular, tax debt exceeding the 90 days payment window accounted for more than VND26 trillion ($1.15 billion); overdue fines were more than VND15.6 trillion ($694 million); while irrecoverable tax from deceased or incapacitated people accounted for over VND31.4 trillion ($1.39 billion), up to 43 per cent of total tax debt and 3.2 per cent of total domestic revenue in 2017.

Meanwhile, the total amount of tax arrears, late payments and fines under the management of Customs in 2017 was more than VND5.4 trillion ($240 million) - 70 per cent of which is deemed irrecoverable - having increased by 23.5 per cent from the end of 2016.

The combined amounts of tax loss under tax and customs agencies in 2017 amounted to almost half of the national tax debts.

Unrecoverable debt levels have been high in recent years, prompting tax authorities to implement drastic measures to speed up enforcement and recovery of tax debts.

In 2017, the entire tax branch scrambled to collect VND44.7 trillion ($1.9 billion) in debt, equal to 89.9 percent of outstanding tax debt from 2016.

According to the GDT, the tax branch will implement changes in tax debts management in order to improve State budget’s revenues in 2018, by associating tax recovery with administrative reforms for taxpayers across all economic sectors.

In addition, the GDT will also review debts that are possibly no longer subjected to collection, thereby proposing appropriate remedial measures and reducing tax arrears.

In order to reach the 2018 tax debts collection goal, the General Department of Taxation (GDT) has recently charged provincial tax departments with the arduous task of resolving pending tax amounts and outstanding debts, said Bui Van Nam, GDT’s General Director, in a January press release.

Local tax departments are asked by the GDT to reduce their current tax debts to less than 5 per cent of the State budget in 2018, as well as retrieving at least 97 per cent of overdue tax payments since 2017.

Doan Xuan Toan, deputy director of GDT’s Debt Management and Tax Debt Enforcement Department, said at a GDT meeting in February that one of the highlights of 2018 would be the application of information technology in all stages of public debt management.

The GDT and local tax offices would closely coordinate with state treasuries, commercial banks, credit institutions and investment planning agencies in using online platforms. — VNS