Ease the burden of "Irrecoverable debts"

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The National Assembly's promulgation of a resolution for handling tax debts of tax payers who are no longer able to pay the State budget is necessary, because it will provide regulations on handling tax debts and late payments which have existed for many years but cannot be collected.

Irrecoverable debts increased over the years

According to the latest statistics from the General Department of Taxation, as of August 31, 2019, the tax authority has taken measures for tax debt collection and it has collected VND 24,767 billion of tax debt, increasing by 4.4 percent compared to 2018. Total tax debt reduced by 3 percent compared to 2018. The total 90-day tax debt and over 90-day tax debt (recoverable debt) accounted for 51.3 percent of the total tax debt (down 12.5 percent compared to 2018). The irrecoverable tax debt accounted for 48.7 percent of total tax debt. This debt increased by 9.7 percent compared to 2018.

In fact, tax debt always tends to decrease compared to the previous year. However, the total tax debt has reduced was due to the decrease in the less than 90-day tax debt. Meanwhile, the irrecoverable tax debt group increased over the years and accounted for an increasing proportion of total debt. Currently, irrecoverable tax debts are increasing day by day because tax debtors are also related to force majeure causes.

For example, irrecoverable debt at the Hanoi City Tax Department in 2015 was VND 2,657 billion. In 2016, the irrecoverable debt increased to VND 3,640 billion (up 37 percent) compared to 2015, accounting for 11 percent of the total debt. In 2017, irrecoverable debt was VND 5,311 billion (up VND 1,671 billion, up 45.9 percent compared to 2016), accounting for 27 percent of the total debt). In 2018, irrecoverable debt increased to VND 7,192 billion (increasing by VND 1,881 billion (up 35.4 percent) compared to 2017, accounting for 37 percent of the total debt). Thus, from 2015 to 2018, irrecoverable debt at the Hanoi City Tax Department increased to 4,537 billion (up 170 percent), accounting for more than a third of total debt.

The increase in debt, the increase in fine

According to Mai Son, Director of the Hanoi Tax Department, irrecoverable debts are mainly in the case of taxpayers who are no longer operating but not reporting to the tax office (accounting for 85 percent of total irrecoverable debts).

Before taxpayers vacate their business addresses, tax authorities have taken measures to enforce tax debts according to regulations. However, enforcement measures are ineffective due to businesses no longer operating and no cash flow. According to statistics, as of August 2019, at Ha Noi Tax Department, there were 314,680 tax payers vacating their business addresses and not declaring to tax authorities, of which 98,868 enterprises and 215,812 household business. The number of tax payers vacating their business addresses arising from 2016-2018 was 62,482. These figures have shown how hard it is for tax authorities to monitor these irrecoverable debts.

For these cases, the Hanoi Tax Department has worked with local authorities to verify the non operation of taxpayers at their registered business addresses. More than a year from the date of issuing notification on abandonment of business address, if tax payers do not resume their operation, the tax authority shall send a list of these tax payers to propose to the Hanoi Department of Ha Noi Planning and Investment Department to revoke the business registration certificate.

According to local tax departments, an important reason for the increase in irrecoverable tax debt is the increase in late payment amount. At Ha Noi Tax Department, if the increase in original debt is 129 percent, the increase in late payment is up to 260 percent. Particularly, the average late payment of the irrecoverable debt group at Ha Noi Tax Department is VND 500 billion. As of July 31, 2019, the late payment amount of bad debts was VND 3,399 billion. Because the current Law on Tax Administration stipulates that late payment interest will be fined 0.03 percent/day on the late payment tax amount. This provision is required sanctions. However, the regulations on late payment fines for irrecoverable debt group have caused an increase of late payment debts and accounted for an increasing proportion of debt structure over the years.

At Ho Chi Minh City Tax Department, currently, this Tax Department is managing 233,000 tax payers no longer operating in their business addresses, of which 67,894 businesses and 165,922 business households and individuals. Total debt is VND 6,639 billion, fines of late payment is VND 2,138 billion. Every 1 year, the figure of VND 6,000 billion will arise 10% (about 600 billion) and this is very difficult for the monitoring and management.

Write-off tax debt to prevent from wasting human resource

From these above-mentioned data and the urging for the recovery of outstanding debts, the National Assembly's promulgation of a resolution for handling tax debts of tax payers who are no longer able to pay the State budget is necessary, because it will provide regulations on handling tax debts, late payments which have existed for many years but cannot be collected and tax authorities still monitor and manage, causing a waste of human resources.

Moreover, the Law on Tax Administration 2019, which has been approved by the National Assembly and takes effect by July 1, 2020, will provide regulations for handling bad debts. However, these regulations only apply to tax debt arising from from July 1, 2020 and are not applied to tax debt before July 1, 2020. Therefore, the promulgation of a resolution for handling tax debts arising before July 1, 2020 is necessary, ensuring a comprehensive and thorough settlement of irrecoverable tax debts.

According to Mr. Mai Son, if the draft resolution on handling debt is approved, the Hanoi Tax Department will be allowed to freeze the original debt of VND 4,530 billion of 162,583 tax debtors . The debt freezing will curb arising VND 500 billion of late payment interests. The decrease in the number of tax debtors will help the tax administration in general and the debt management in particular to be more effective. if the draft resolution is approved, the Hanoi Tax Department will be able to write off about VND 3,399 billion of late payment interest from the bad debt group.