Headache with outstanding tax debts

VCN – Over past years, the Customs system for tax management has still not settled irrecoverable outstanding debts despite many coercive measures by the Customs. What solutions are there for these debts?
headache with outstanding tax debts Hanoi has exposed 144 units of tax debt in the beginning of 2018
headache with outstanding tax debts Customs sector has reduced the amount of tax debt by over VND 157 billion
headache with outstanding tax debts General Department of Vietnam Customs urges Hai Phong Customs to collect tax debts
headache with outstanding tax debts

Operations at Yen Phong Customs Branch, Bac Ninh Customs Department. Photo: T. Trang

Debts have been pending year after year

Deputy Director of Customs IT and Statistics Le Duc Thanh shared that currently the Customs system for tax management has displayed many tax debts, including very small tax debts from 1994 due to failing to find debt owners and lack of guiding documents by the Ministry of Finance for debt handling and writing off, thus these debts have been pending year by year.

In addition to debts of import and export duties, Customs fee and charge debts are a matter of concern by Customs authority. Customs charge for a declaration is only VND 20,000, but some enterprises have owed several million dong of Customs charges, while no documents by the Ministry of Finance allow Customs authority to take coercive measures to collect the fees and charges. That makes it difficult for the Customs authority to collect these debts.

Actually, the outstanding debts are debts arising due to the former policy (Law on Import and Export Duties) which provides a grace period to enterprises. The enterprises have taken advantage of this provision to evade tax by leaving the registered business address or dissolving by themselves for new establishment. Some other enterprises cannot afford to pay the debts due to loss-making or financial difficulties though they are still in operation. Some enterprises are in long-time debts (from 10 years to 20 years) and no longer exist on the tax management system and are out of debt writing off.

Now, the tax debts of the Customs sector have been classified into 3 groups: recoverable debts; bad debts; debts pending written off, exemption, reduction, being frozen or extended. As of 28th February 2018, the tax debts of the Customs sector were VND 5,405.89 billion of which recoverable debts were VND 1,433.37 billion, overdue debts pending writing off, exemption and reduction were VND 113.19 billion (down by VND 13.22 billion over 31st December 2017) and bad debts were VND 3,859.34 billion.

It can be seen that from the Law amending and supplementing some articles of Law on Tax Management, enterprises have been no longer permitted to owe tax but must immediately pay the tax after goods clearance (enterprises are only permitted to owe tax if being guaranteed by a credit institution). This has helped the Customs sector to minimize outstanding tax debts and arising debts. Therefore, the current tax debts of the Customs sector are mainly remaining tax debts before the effective date of Law on tax management and debts due to tax assessment from post clearance audit.

In the debt management, the Customs authority has also defined the criteria for debt classification according to specific groups: Bad debts; Debts pending writing off, exemption, reduction, extension and gradual payment; Recoverable debts, and set up steps for debt classification and made taxpayer records. However, the most difficulty for the Customs sector is still bad debts. To this date, the bad debts are VND 3,859.34 billion. These debts include: Debts of dissolved enterprises, debts of bankrupted enterprises, debts of taxpayers related to criminal liability, debts of taxpayers who have engaged in complaints and petitions and have not paid their debts according to decision on tax arrears collection or tax assessment by competent authorities and debts of enterprises which no longer operate at their registered business addresses, or which have stopped or temporarily stopped their operations.

Collection is unable, writing off is also difficult

Debts have been pending year by year, despite coercive measures, the debt collection is still ineffective, thus one of most popular contents which has been proposed by most by the municipal and provincial Customs authorities is provision on tax debt enforcement and writing off.

Relating to the tax debt management, Binh Duong Customs Department and Hanoi Customs Department have said that although Law on tax management has stipulated a number of cases subject to tax debt writing off,it has not included all cases arising in reality. There have been cases where enterprises have been in debt for more than 10 years, but the Customs authority could not take all coercive measures in accordance with the law because these enterprises have been approved by competent authorities (such as Department of Planning and Investment private companies, industrial parks management boards, provincial people's committees, etc.) for termination from operation or dissolution before the effective date of the Law (1st July 2006).Orthere have been cases where many foreign business owners fled to their the country without fulfilling their tax obligations.

Further more, during the implementation of measures to urge the tax debt recovery, Customs departments have met difficulties and failed to implement coercive measures (deducting part of wages, incomes, listing assets and putting the listed assets on an auction, collecting money or other propertiesheld bypersons subject to enforcement for implementation administrative decisions). The reason is because the Customs authority has no basis to determine the salary, income and assets of the subjectsof enforcement. The Law on Tax Management does not stipulate the competent authorities whichare responsible for providing information on assets of various enterprises. On the other hand, many enterprises have long-time tax debts, have been revoked the Business Registration Certificate and have been dissolved, so the above coercive measures could not be applied. Moreover, the deduction of wages or income can only apply to tax debtors as individuals but not to companies.

From the above reality, the two units jointly recommend to develop an appropriate mechanism to write off tax debts, fines for late payment and fines for enterprises which are missing, bankrupted and escaped in order to prevent the loss of revenue, reduce pressures, time and effort for the tax management agencies.

Regarding this matter, Lang Son Customs Department recommended competent authorities to issue more effective legal documents on enforcement forCustoms administrative decisions; to enhance responsibilities of agencies, organizations and individuals in coordination to carry coercive measures. At the same time, it is necessary to amend and supplement legal documents related to the dissolution, bankruptcy and suspension of operation of enterprises in order to prevent the situation that enterprises evadesto fulfil the obligations on tax and fines for administrative violations in the post-customs clearance audit.

Particularly, it is necessary to review the provision oncases subject totax debt writing off, in which the tax management agencies are required to take all coercive measures prescribed at points b, c and d of Clause 1, Article 93 of the Law on tax management. The Customs authorities cannot implement due to the entanglement with the ownership stipulated in the Constitution and the procedures for these cases,which are very complicated.

Besides, Lang Son Customs also proposed to expand the subjects of tax debt writing off for more than 10 - year debts thathave not been collected despite coercive measures by Customs.

With the same opinion, representatives of Dong Nai and Khanh Hoa Customs Departments said that the Ministry of Finance and the General Department of Customs should make recommendations to amend provision on the cases that less than 10-year tax debts, late payments and fines have not been collected despite coercive measures by Customs authorities, while the enterprise owners have fled away, been missing; or have been revoked business certificates, establishment and operation licenses., etc. It is proposed to make dossier of debt write-off (it is not required 10 years).

headache with outstanding tax debts Difficulty in collecting tax debts

VCN – The Customs is suffering from a large tax debt from year to year despite efforts.

It can be seen that the mechanism for tax debt writing off is a content that all provincial and municipal Customs units have mentioned. Most of the opinions said that it was necessary to add specific provisions to the tax debt writing off for bad debts and expand subjects of tax debt writing off for more than10 –year debts that have not been collected despite coercive measures by the tax management agencies.

The Ministry of Finance has just consulted in the draft Resolution of the National Assembly on handling and freezing irrecoverable debts, fines for late payments and fines. The written-off debts are estimated atVND 26.5 trillion.

Accordingly, the Ministry of Finance proposed to write off the tax debts, fines for late payment and fines for irrecoverable debts because the taxpayers are actually dissolved (except for dissolution cases for splitting or merger), bankrupted or stop their operations and have no longer operated before 2017. These persons can not afford to pay the debts and have been revoked the business registration certificates by business registration agencies.

Regarding the handling competence, the Ministry of Financeproposed the Prime Minister to issue decision on debt writing-off for more than VND 10-billion debts. Minister of Finance is authorized to issue decision on debt writing off for VND 5-10 -billion debts. The Director General of Taxation and the Director General of Customs shall decide on the debt writing off for less than VND 5-billion debts.

By Thu Trang/ Huyen Trang

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