The Government has implemented principles and measures in order to create favorable economic environment for enterprises through the issuance of Resolution 35/2016/NQ-CP dated 16 May 2016. These principles include, among others:
- The State shall ensure the stability, consistency and predictability of relevant policies.
- Regulations on business shall be clear, transparent and achievable, and the State shall issue reasonable route maps for removal of unreasonable sub-licenses, fees and charges.
- Competent authorities shall be in charge of examining regulations on tax, tax administration and customs and proposing adjustments to simplify process and save time and business costs.
However, in practice, the application of tax-related regulations still create unfavorable conditions for enterprises. We are aware of the following outstanding issues:
Investment incentives versus retrospective taxes collection
We understand that there are a number of new issues arising every day in tax sector so that the Government has to amend tax policies frequently. This, on the one hand, helps to timely address new issues. On the other hand, it sometimes causes inconsistency in the application of the laws, thus resulting in unforeseeable financial losses for companies.
For example, in certain cases the same tax authority reject their previous decision, re-determine tax obligation and collect additional taxes. In practice, many companies are subject to unpaid taxes and administrative sanctions without being aware of their violations even though the taxes were paid.
Since tax policies often change, it could be regarded as a breach of the transparency and predictability principles in the Government’s Resolution No. 35.
HS code declaration
The most disturbing aspects are the inconsistency and unpredictability of customs authorities when applying HS code to imported goods. In fact, the problem lies in the process of custom declaration. Since there are different determinations of HS code, companies are forced to submit an application in accordance with various guidance and notifications from several authorities which apply distinct analysis and categorization criteria.
Perhaps the biggest problem is that tax authorities, in some cases, do a post-clearance audit for the customs declaration forms of the company and re-apply a different code for all the products imported. Besides, the tax rate applicable to the new HS code is higher than the previous one. This unpredictability requires enterprises to pay late payment interests and penalties because of changing regulations. It seems impossible for companies to re-calculate the prices of goods that they already sell to customers to cover the penalty.
The main concern is that enterprises are facing a serious impact on their business activities or even the risk of lost sales due to the lack of responsibility of competent authorities. Therefore, investors welcome the initiative to stipulate penalties to tax officials when their decisions are not in line with the spirit of the law.
Initial wrong declaration of tax code, tax rate and payable tax
According to regulations on administrative sanctions on customs violations, incorrect declaration of tax rate and payable tax after being guided by the customs authority on how to declare HS code and related topics are subject to penalty.
Nevertheless, customs authority misinterpret the given guidance and impose the penalty right from the time the enterprises declare the goods on their own. This interpretation is based on some inconsistent and restrictive assumptions. It is unreasonable to impose the penalty at the time the company make self-declaration due to the complex determination of the HS code.
Warranty as an attached service
Under Vietnamese law, if a foreign contractor sells goods at the border gate and its contract with the buyer includes a warranty clause, such warranty clause cannot be considered an attached service but a responsibility of the seller. Thus, a warranty service must not be subject to foreign contractor tax (“FCT”). Nevertheless, State authorities have interpreted this as an enclosed service and imposed FCT on many transactions. This interpretation and application of the law create confusion and unfavorable conditions for enterprises.
Administrative errors leads to wrong form of tax declaration
According to Law No. 106/2016/QH13, enterprises having non-credited input VAT qualified for VAT refund for the period prior to 01 July 2016 will get VAT refund. There are cases where the deadline to submit VAT declaration form of June 2016 or the second quarter of 2016 is on 20 July 2016 or 30 July 2016. However, tax authority has rejected tax refund application of many enterprises due to their failure to fix the VAT refund amount in the VAT declaration form. The failure to determine the VAT refund amount is partly due to unclear statutory timeline as well as constant change in tax declaration forms. This should be a purely administrative error and not serve as a basis for the tax authority to deprive tax refund benefits of the enterprises.
With the above mentioned issues, State authorities at all levels should be consistent and clear in the implementation of policies to fully protect enterprise’s lawful rights and interests. The Government should take immediate action to materialize its targeted socio economic development.
***
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!