Ramping up tax audits to boost shrinking state budget
Many firms in Vietnam, both local and domestic, will face tax audits this year.
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Taxation is a major component of the state budget revenues and as the country’s budget deficit increases, taxpayers and enterprises will continue to face increased scrutiny from tax authorities trying to meet their revenue targets.
In a bid to curb tax evasion and swell state budget, the government stated in its recently-released Resolution 01 on major solutions to boost socio-economic development in 2018 that in addition to trimming unnecessary recurrent spending, authorised agencies must apply measures to ensure the nation’s financial health, including tax inspections, audits, and examinations.
The General Department of Taxation (GDT) has issued Official Letter 5339/TCT-TT directing local tax offices to create a tax audit plan for 2018.
Taxation is a major component of the state’s budgetary revenue and as the country’s budget deficit increases, taxpayers and enterprises will continue to face increased scrutiny from tax authorities trying to meet their revenue targets.
In a bid to curb tax evasion and the swell state budget, the government stated in its recently-released Resolution 01 on major solutions to boost socioeconomic development in 2018 that in addition to trimming unnecessary recurrent spending, authorised agencies must apply measures to ensure the nation’s financial health, including tax inspections, audits, and examinations.
Under GDT’s directions, local tax officials will be conducting on-site tax audits of at least 18.5 per cent of taxpayers under each local tax office. This is an increase from 2017’s target of 18 per cent. In addition, at least 1 per cent of taxpayers will face tax inspections, while the remainder will be subjected to tax examinations.
The taxpayers facing tax audits will be selected based on the tax probable risk system (TPR) system. The TPR system analyses taxpayers risk information for conducting tax audits.
As per the Official Letter, tax audits will mainly focus on taxpayers who claimed refunds on value added tax (VAT) and those involved in sectors with significant revenue.
The latter group includes oil and gas, petroleum, private hospitals, airlines, credit institutions, pharmaceutical companies, hotels and casinos, lottery companies, seaports, airports, and multinational companies.
Besides, tax audits will also focus on firms involved in investment project transfers, capital transfers, and franchising; enterprises with numerous transactions with related parties, including ones who have reported continuous losses or lower profit margins than other enterprises in the same sector.
Moreover, tax audits will also centre on companies engaged in upcoming sectors, such as multi-level trading companies, gaming, and digital technology-based services.
Furthermore, tax audits will also target other sectors, including real estate, construction materials manufacturing, natural resource exploitation, FMCG, and automobile manufacturing/trading.
According to Asia Briefing, a subsidiary of pan-Asia consulting firm Dezan Shira & Associates, with growing scrutiny from tax authorities, firms need to have a tax risk management system in place to help identify risky tax areas in an organisation.
“Once identified, they need to evaluate them to understand the effects and likelihood of occurrence and managing risks to minimize tax exposure,” Asia Briefing said in a bulletin on tax audits in Vietnam in 2018.
“With regulators and tax officials taking an aggressive approach in 2018, firms and taxpayers should be proactive in nature to reduce compliance costs and tax exposures.”
