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Effective prevention of transfer pricing helps boost tax collection

Update: May, 09/2014 - 09:15

HCM City's corporate income tax collection showed an increase in Q1 compared to the same period last year, deputy director of the city's Taxation Department, Le Xuan Duong, told Tuoi Tre (Youth) newspaper.

What are the reasons for the increase in the city's corporate income tax collection this year? Is it because the economy has been better, or the anti-transfer pricing in foreign direct investment (FDI) enterprises has worked?

Corporate income tax collection from FDI enterprises in the first quarter of this year was reported to have increased 49 per cent over the same period last year. The tax collection from other sectors also increased, but was not that high. It shows that the enterprises operated very well in the first quarter.

One of the reasons was that the tax on small and medium enterprises, which was deferred from the third quarter of last year, had become due. Another reason was that in the past many FDI enterprises declared losses in business, but recently, tax agencies focused a lot on measures to prevent transfer pricing. Therefore, many enterprises became "no loss", "less loss" or some even got "benefit".

Many enterprises have realised their responsibilities in investment and business expansion. They understand that besides creating jobs for local people, they are also obliged to pay tax to the State budget. As a result, they know they cannot declare a loss to avoid paying tax forever. That helped increase the collection of corporate income tax. Consequently, tax collection from the FDI sector also increased.

The third reason is that FDI enterprises are more clear-headed about development and have a more sustainable output for their products than domestic enterprises, so their business results are also better.

How about the contribution of the non-State enterprise sector with the State budget? Have the non-State enterprises recovered from sluggishness reported in the previous years?

Corporate income tax collected from non-State enterprises also increased to 30 per cent.

The services sector was reported to have maintained its growth while production of FDI enterprises in industrial zones and processing zones also resulted in taxes. The decrease came from the banking sector, real estate and related services as the banks had to set up funds to prepare for risks. The real estate sector faced difficulties for a while, but, in general enterprises recovered, though slowly.

How do you respond to the claim that strict control in the use of value-added tax (VAT) invoices, as was done recently, would kill newly-established enterprises?

We have reported to the Ministry of Finance and the Viet Nam General Taxation Department about the difficulties arising for new enterprises from this. The ministry has taken guidance to partly solve the problem. In the future, tax agencies will also categorise enterprises to help the young ones not at a disadvantage, as well as to ensure enterprises don't play tricks with VAT invoices. Recently, there have been thousands of enterprises established in HCM City who have traded VAT invoices, which is very bad.

Before the regulations on VAT invoices were applied, we had consulted enterprises and organised many workshops about it. The regulations did create problems for some enterprises, but the number was not high. If enterprises operate decently, they will be shifted to the other category of the VAT collection list, which will be easier for them.

In contrast, enterprises not operating properly will definitely have to declare tax directly.

Which sectors now have the most outstanding tax debts? What are the reasons of outstanding tax debt?

Outstanding tax debt in HCM City is now about VND17 trillion (US$809 million). Of those, 40 per cent are from real estate enterprises and relevant enterprises such as designing, electricity, air-conditioning and construction materials.

The reasons for the outstanding tax debt are that many enterprises, especially those in real estate, did not have access to loans to pay their tax. We hvae reported to the Ministry of Finance and the Viet Nam General Department of Taxation to consider a deferment for those enterprises due to the difficult situation. — VNS


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