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Official Gazette

Tuesday, December 1, 2020

Draft amendments to the Law on Tax Administration

Updated: 10:25’ - 27/04/2012

The XIIIth National Assembly is scheduled to debate the Law Amending the Law on Tax Administration at its 3rd session next month. This article introduces major contents of this draft Law.

Nguyen Van Phung

Deputy Director General of Tax Policy Department Ministry of Finance

 

Since the nineties of the last century, Vietnam’s tax system has been reformed comprehensively. A series of tax laws and ordinances have been promulgated, each containing tax policies, taxpayers, objects and scope of regulation, tax administration process, tax declaration, calculation and payment procedures, tax obligations and penalties on violators. Through more than 15 years of tax reform, Vietnam found it necessary to have a separate law on tax administration to unify tax administration processes and procedures, clearly define the rights and obligations of taxpayers as well as responsibilities and obligations of tax administration agencies and related state management agencies in the enforcement and supervision of the implementation of tax laws. In this context, the XIth National Assembly of Vietnam passed the Law on Tax Administration (No. 78/2006/QH11 dated November 29, 2006), which took effect on July 1, 2007.

After four years’ implementation, the Law on Tax Administration (the Law or current Law) has entered the economic and social life, exerted positive impacts and basically achieved the set objectives and requirements. Tax administration policies and contents have been formulated and consistently implemented, marking an important step in creating synchrony and increasing transparency in the observance, enforcement and supervision of the observance of tax laws by taxpayers. The Law has helped create a favorable environment for taxpayers to observe tax laws and fully and timely pay taxes. It has also created mechanisms for public examination and supervision of the enforcement of tax laws by tax officers and agencies at all levels. The tax administration method has been changed from official assessment to self-assessment. Tax agencies have performed function-based administration combined with taxpayer-based administration and are moving to apply the method of risk administration based on taxpayer information.

Yet, since Vietnam is no longer an underdeveloped country and embarks on a new period of development and in light of the tax system reform strategy through 2020 and the 2011-2015 reform plan, the Law has revealed limitations to be addressed. The new situation of the country’s socio-economic development and the requirement of further raising the effectiveness and effect of state management have posed an objective demand for amending the Law.

The revision of the Law is aimed at the following objectives:

Firstly, it is necessary to reform tax-related administrative procedures to be simple, clear and transparent and convenient for taxpayers in tax registration, declaration, calculation and payment, reducing their costs and time for performing tax obligations and encouraging and creating conditions for them to properly implement self-declaration, self-assessment and payment of taxes.

The second objective is to increase the effectiveness and effect of tax administration to prevent tax losses and reduce tax debts and to collect accurate taxes in a timely manner into the state budget.

The third objective is to modernize the tax and customs systems toward implementing the mechanism of risk management in all stages of tax administration and customs supervision and inspection. The role of the State and the community in inspecting and supervising tax administration activities will be promoted in line with the trend of integration and in accordance with international commitments, standards and practices.

Lastly, the revision is intended to create uniformity and increase coordination between tax administration agencies and related agencies and organizations.

Major contents of the draft Law

According to the government report on the draft Law Amending and Supplementing a Number of Articles of the Law on Tax Administration (the draft Law) presented to the National Assembly Standing Committee, 31 out of 120 articles of the current Law are expected to be amended and supplemented concerning three groups of issues.

Simplification of administrative procedures

The frequency of value-added tax (VAT) declaration will be reduced from 12 times to four times a year. Accordingly, business households and persons and small- and medium-sized enterprises that currently declare and pay VAT on a monthly basis will be allowed to make quarterly declaration and payment. This change is related to Article 31 (tax declaration dossier), Article 32 (time of tax declaration) and Article 33 (extension of time limit for submission of tax declaration dossier).

Tax declaration frequency is an important indicator used by the World Bank (WB) and the International Monetary Fund (IMF) in evaluating and ranking the business environments of countries. Therefore, this revision is in line with international practices to increase the competitiveness of Vietnam’s business environment.

The time for settling requests for extension of the time limit for submission of tax declaration dossiers would be reduced from five to three working days (Article 33). This reduction has been actually applied on a trial basis.

Article 47 of the current Law provides the handling of overpaid tax amounts. In reality, there are also many cases of overpaid fines. So, it is necessary to add provisions on the payment of overpaid fines and adjust the statute of limitations for handling overpaid tax and fine amounts in tandem with the revision of the statute of limitations for retrospective tax collection in Clause 3, Article 11 of the Law (expected to be 10 years).

Tax refund request dossiers will be simplified in the direction that data available in the tax sector’s database are not required to be included in these dossiers. Taxpayers will have to submit only one set of dossier instead of many as at present. This is seen in the revision of Article 58 of the current Law.

An amendment of public concern is related to tax refund procedures because the time for carrying out tax refund procedures is related to costs borne by taxpayers as well as to the responsibility of tax administration agencies. As per the draft Law, the time for settlement will be significantly shortened. For tax refund before examination, 15 working days will be reduced to six. Meanwhile, for tax refund after examination, this time will be cut from 60 to 40 days from the date of receipt of complete dossiers. To make this change feasible, Article 60 of the current Law will be revised regarding time limit, responsibilities of tax agencies and classification of tax refund dossiers. Accordingly, dossiers will be classified into two types: dossiers of tax refund before examination and dossiers of tax refund after examination. At the same time, the Government will be assigned to specify the classification of dossiers eligible for tax refund after examination to raise the accountability of enterprises.

Regarding write-off of tax and fine debts for bankrupt enterprises, the current Law provides that a dossier of request must include a tax finalization declaration. However, in the process of handling bankruptcy, tax agencies have participated in determining tax debts and the court’s bankruptcy declaration decision is a legally valid one. Therefore, Article 66 of the current Law will be revised to use this court decision in replacement of the tax finalization declaration with a view to removing unnecessary procedures.

Reform toward modernization and integration

The draft Law adds the risk management principle as a basis for uniformly applying advanced tax administration techniques and operations, classifying taxpayers according to law observance criteria and introducing priority measures in the implementation of tax-related administrative procedures to encourage taxpayers to properly conduct self-assesment and self-payment according to international practices. As recommended by such international organizations as OECD, IMF, the International Customs Organization and the Kyoto Convention, this globally applied principle has been implemented on a pilot basis with important results in Vietnam in recent years. In this spirit, Article 4 of the current Law will be added with Clauses 4 and 5 on this principle. Taxpayers that operate in low-risk sectors and geographical areas and have a good record of law observance will be prioritized in implementing tax-related administrative procedures.

The mechanism of advance pricing agreement (APA) to resolve transfer pricing disputes is also introduced in the draft Law. APA has been applied in many countries like China, Thailand, Malaysia, Singapore, the USA, the Republic of Korea, Japan and in the EU. Under this mechanism, enterprises operating in many countries (mostly FDI enterprises) must take the initiative in proposing pricing methods or prices of commercial transactions within their groups and global production and distribution before tax declaration and payment. Vietnamese tax agencies (possibly in coordination with tax authorities of the countries which have signed double taxation avoidance agreements with Vietnam) will examine and supervise to combat transfer pricing.

The introduction of the APA mechanism is expected to facilitate the collection and protection of revenue sources and enable enterprises to actively plan their business and perform tax obligations. To create a basis for APA implementation, the draft Law adds a provision permitting tax agencies to apply the APA mechanism to taxpayers and tax authorities of countries which have signed double taxation avoidance agreements with Vietnam. This issue is touched upon in Article 9 (Competence of tax administration agencies) and Article 36 (Tax assessment principles). A new term is also added to Article 5 (interpretation of terms). As APA is related to corporate income tax policy, the draft Law assigns the Government to stipulate the procedures, process and time of implementation of the APA mechanism. The calculation, assessment and determination of taxable incomes still comply with the current Law on Corporate Income Tax.

The draft Law also contains new provisions on commodity heading classification and valuation and determination of origins of goods before carrying out import and export procedures according to the Kyoto Convention, which Vietnam has acceded to. This is an international standard that facilitates international trade, helping enterprises calculate in advance payable tax amounts, and creating conditions for customs agencies to effectively manage revenue collection, and reducing disputes between enterprises and customs agencies in the application of commodity headings, determination of duty rates and origin of goods when carrying out customs clearance procedures. The draft Law adds these provisions to Article 6 (Rights of taxpayers), Article 8 (Responsibilities of tax administration agencies) and Article 5 (Interpretation of terms).

The draft Law also allows tax agencies to collect information on taxpayers from overseas sources in accordance with signed agreements and treaties and intensify exchange of information with foreign tax authorities for the purpose of preventing and combating tax frauds (scam enterprises and partners, cheating in business,  ect.) (Clause 2, Article 70).

Enhancing the effectiveness of tax administration

Regarding the time limits for paying duties on imported and exported goods, the draft Law amends Article 42 of the current Law through clearly stipulating that taxpayers must pay duties before the time of customs clearance or goods release. If having bank guarantee, taxpayers may enjoy customs clearance or have goods released before paying duties but will have to pay interests on late paid duty amounts. These provisions aim to limit abuse of the duty payment extension and deliberately delayed payment of tax debts and conform to international practices. The daily interest rate is expected to be 0.05%, counting from the date of customs clearance or goods release to the date of tax payment. The guarantee period complies with the Government’s regulations.

Under Article 45 of the current Law, the order of payment of tax amounts and fines is as follows: tax debts, restrospectively collected tax amounts, arising tax amounts and fines. Yet, the practical customs management shows that, in connection with Article 92 (on coercive collection of tax debts which are overdue for over 90 days), tax debts are classified into those overdue for over 90 days and those overdue under 90 days (not subject to coercive collection). In order to raise the effectiveness of debt management, international experience and practical work show that it is necessary to collect overdue debts first in order to reduce bad debts and cases of coercive collection. So, the draft Law revises Article 45 by separating the order of payment of tax amounts and fines managed by tax agencies and customs agencies. Accordingly, for taxes managed by customs agencies, overdue tax debts and interests on late paid tax amounts will be collected first.

The draft Law adds a provision to Article 49 on the extension of the tax payment time limit for enterprises which have to relocate their production and business facilities at the request of competent state agencies and enterprises which owe tax debts as they have not yet received payments according to regulations from the state budget. This extension has been actually provided in the decrees guiding the Law on Tax Administration. Now it is necessary to include it in the Law for increasing its legal validity.

Article 92 (Clause 4) of the current Law is added with provisions on the gradual tax payment (phased payment) applicable to taxpayers that are unable to pay tax in a lump sum. As per these provisions, taxpayers are allowed to pay tax debts gradually, together with interests on late paid amounts, when they have bank guarantee, in order to reduce cases of coercive collection and support enterprises, especially when they owe large tax debts (having to pay fines one to three times tax amounts) and have short-term financial difficulties. The Government is assigned to detail conditions, procedures and competence to decide on these cases.

The current Law provides the scope of write-off of tax and fine debts for bankrupt, dead and missing taxpayers (Article 65). The draft Law clearly specifies cases of write-off of tax debts which are still hard to recover after all coercion measures have been applied for 10 years. Regarding competence, the draft Law assigns the Government to stipulate and organize the examination of the write-off of tax debts and report examination results to the National Assembly in annual state budget finalization reports. At the same time, in its implementation provisions, the draft Law assigns the Government to examine the write-off of tax debts caused by force majeure events before the effective date of the Law (July 1, 2007), and report its results to the National Assembly.

Regarding enforcement of tax-related administrative decisions, the current Law provides seven enforcement measures and the sequential implementation of these measures in Articles 93, 98, 99, 100, 101 và 102. The draft Law amends these provisions in the direction of (i) adding provisions on the measure of cessation of customs procedures for exported goods; (ii) altering the sequential order of a number of measures; and (iii) for taxpayers that intend to abscond or disperse their assets, allowing tax administration agencies to apply appropriate measures to ensure prompt recovery of tax debts.

Articles 106, 107 and 108 concerning penalties (fines for late tax payment, fine levels and violations) are expected to be amended in order to encourage taxpayers to voluntarily remedy consequences and correct errors. Those who voluntarily make additional declarations will have to pay lower fines. At the same time, additional provisions are made on the payment of interests on tax amounts remitted late into the state budget by agencies and organizations authorized to collect taxes, banks and financial institutions and the separation of violations of taxpayers from those of authorized tax collectors.

The current Law contains no provisions on the statute of limitations for retrospective collection of taxes. Whereas, the Value-Added Tax Law and the Corporate Income Tax Law provide a 5-year period and the Accounting Law provides a 10-year time limit for preservation of accounting documents. Since the retrospective tax collection must be based on accounting documents, the draft Law adds to Article 110 a provision on the application of a 10-year statute of limitations for retrospective collection of taxes from the date of detection, and annuls all provisions of relevant laws which are against the draft Law when it takes effect.

Regarding tax examination at taxpayers’ offices, Article 77 and 78 of the current Law provide that tax examination is largely based on taxpayers’ tax declaration dossiers and explanations. The draft Law additionally provides that tax examination may be based on risk assessment criteria, specialized issues and annual plans and may not be conducted more than once a year. This provision aims to help tax authorities to control examination purposes and their internal activities and prevent arbitrary examinations causing troubles to enterprises.

Other provisions of tax administration are also amended and supplemented to be consistent with other laws, such as those concerning time limits and places for submission of tax declaration dossiers (Article 32), time limits for tax payment (Article 42) and management of land-related revenues. Some provisions on tax inspection are expected to be changed to be consistent with the Law on Inspection as follows:

“Contents of tax inspection provided in Law No. 76/2006/QH11 on Tax Administration which are inconsistent with the provisions of legal documents on inspection will be implemented in accordance with legal documents on inspection.”

As it takes time to complete decrees and circulars and develop necessary software applications for use by taxpayers and tax agencies, the National Assembly may allow the draft Law to take effect from January 1, 2014.-

VNL_KH1 

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