FDI Enterprises Fleeing, Evading Taxes: Red Alert

Since the start of 2012, customs authorities have repeatedly warned that foreign-invested companies in many provinces and cities are taking advantage of easy import and export policies in Vietnam to owe huge taxes and flee to their home countries without paying off. This has demanded much effort from customs authorities to deal with the consequences. Tax evasion committed by FDI companies is at an alarming rate. The value of unpaid taxes reaches tens of billions of Vietnamese dong.

 

A typical case is Diing Long Vietnam Co, Ltd in Binh Duong province. This company owed over VND17 billion (US$800,000) of export taxes on production materials. This tax had not been collected before its director returned the country. It now has a factory on a campus of 3 hectares, valued at VND70 billion, but this property had been used for a bank loan of over VND100 billion. For such a case, customs authorities can hardly claim back taxes.

 

Foreign tax evaders are mainly involved in export production. According to specialists, as economic fluctuations drag on export production and labour costs in Vietnam are not as competitive as in many countries in the region, many FDI companies take this chance to take flight.

 

Fleeing and tax-evading FDI companies are not rare. Customs authorities of northern Hai Phong City said that 14 tax-owing foreign-invested companies have run off, leaving behind nearly VND11.7 billion of unpaid taxes. They are mainly indebted import duty, VAT and even fines on late-paid taxes. Kenmark Investment and Development Co., Ltd is the biggest tax debtor owes over VND7.2 billion (nearly VND3.7 billion of VAT and more than VND3.5 billion of import duties).

 

Customs authorities of Hanoi City said they are reviewing tax debt sources, focusing on FDI enterprises. Meanwhile, according to the Customs Department of Ho Chi Minh City, the largest economic centre of the country had 1,114 tax-owing enterprises escape from registered business addresses or suspend operations. They incur over VND416 billion of export and import taxes.

 

According to customs authorities of Dong Nai province, it is possible to review and urge local tax-owing companies to pay off taxes in time, but it is very difficult, even ineffective, to do this with companies headquartered outside the province, let alone foreign-invested ones. It takes a lot of travelling expense and supervising personnel to corroborate the operation of these enterprises. Meanwhile, the coordination of related ministries and functional agencies is discrete and local. They have so far presented poor support for tax agencies.

 

In Binh Duong and Dong Nai provinces, many foreign-invested companies fled to their countries, leaving no way for Vietnam to reclaim tax debts. They usually use their assets to borrow loans from banks. When they face hardships in operations and cannot pay debts, banks will freeze and seize their assets. And, tax offices find no other sources to offset the taxes owed.

 

Currently, customs departments in Binh Duong and Dong Nai provinces are entangled in a hard tax-evading case. GREE Electrics Joint Stock Company (situated in Vietnam Singapore Industrial Park) is indebted VND22 billion of taxes but its leaders have left without a trace.

 

Without any way to claim back VND13 billion of taxes incurred by South Korea-led Woolim Vina Co., Ltd that ended operations in late 2008, the Customs Department of Binh Duong province has to ask the General Department of Customs to guide bankruptcy procedures for this company. On November 4, 2010, the department asked the immigration management agency to bar the company’s owner from leaving until outstanding tax debts were handled. Nonetheless, this case was extremely complex as it got involved in the courts, Vietnamese banks, Shinhan Vina Bank and Woolim ind. Co., Ltd. (the parent company of Woolim Vina Co., Ltd.) in South Korea and others.

 

In 2012, the customs sector will strive to claim back debts and restrict new tax debts to keep tax debts below 5 percent of total revenue. However, before the current export tax debts by enterprises, customs authorities urged basic change in management methods.

 

Export and import tax debts by companies in general and FDI enterprises in particular are attributed to the provisions of the Law on Export and Import Tax and the Law on Tax Management which allow tax payment deferment of 275 days, dating from the day of opening customs procedures, on inputs for export-oriented production. Goods temporarily imported for export are granted a grace period of 15 days from the last day allowed for the presence of goods temporarily imported for export.

When exempted from taxes or granted grace period of tax payment, FDI enterprises import a very large amount of commodities and then close their businesses without any information to authorities and their owners return their homeland.

 

As a result, customs authorities cannot reclaim taxes owed by such businesses. Article 15 of the Law on Export and Import Tax and Article 18 of Circular 194/2010/TT-BTC dated December 6, 2010 of the Ministry of Finance stipulate tax deadlines and tax grace periods with the purpose of encouraging enterprises to respect the law and to make investments. However, some businesses deliberately delay tax payments, resulting to coercive measures from tax authorities. In many cases, taxes cannot be reclaimed, especially FDI enterprises that already took flight.

 

Before this reality, the General Department of Customs has required its local subordinates check escaped, disappeared and inactive businesses with unsettled overdue taxes, enumerate outstanding taxes, and clarify causes of tax debts and responsibilities of related agencies.

 

To prevent and control bad debts in the FDI sector, according to officials from the Export and Import Tax Department, the Post-clearance Examination Department, and the Risk Management Department under the General Department of Customs, it is necessary to review and amend tax exemption and return clauses stipulated by the Law on Tax Management, the Law on Import and Import Tax and shorten the grace period granted to commodities imported for export-oriented construction (the current 275 days is too long). Tax law-complying FDI enterprises will be granted tax payment deferment.