The personnel problem in tax reform

Recently, Nguyen Thi Ngan, an accountant from a foreign forwarding firm, visited her local tax department looking for a stamp to fulfill a contract with a foreign partner.

But Ngan had the poor luck to encounter an avaricious tax official, who saw the request as an opportunity to profit.

“The tax official said that if we wanted the stamp, we must pay for it, though the stamp is among many legal procedures that both the tax agency and enterprises must complete,” Ngan said. But her firm refused to pay this ‘unofficial cost’.

Ngan was lucky enough to figure out a solution for this unnecessary woe. “After resorting to some ‘special relations’ to solve the issue, our mission came to success,” she said.

But this same situation often comes up. When VIR talked with Nguyen Manh Hung, director of the export department at a big firm in pharmaceutical and veterinary materials, he said that one of the most uncomfortable things that his firm faces is the cool attitude of tax officials.

“In general, firms rarely receive full explanations from them. This forces us to meet them frequently, with some bribe,” Hung said. “Moreover, firms are often visited and vexed by tax officials from different levels, including commune, district, and province.”

Nguyen Thi Tuat, director of a rice trading firm also told VIR that like Hung’s company, her firm is also ‘often visited’ by tax inspectors, who have many times asked for some unofficial money. “If we don’t give it to them, our business will not go smoothly.”

Uneven enforcement

Last week, the World Bank in Vietnam and the Vietnam Chamber of Commerce and Industry (VCCI) launched a second survey on Vietnam’s reform of tax procedures, comprising the input of 3,453 local and foreign firms nationwide.

According to the bank, unfriendly tax officials are one of many bottlenecks in the country’s tax reform efforts.

“The survey findings also tell us that there is room for improvement in the areas of the performance and behaviour of tax officials,” said Nicola Smithers, lead public sector specialist from the bank. 

“There are still nearly 50% of surveyed firms who are not happy with tax officials in these areas. It explains why, under the same tax regulatory and procedural system, the performance of tax offices varies from one province to another.”

Dau Anh Tuan, head of VCCI’s Legislation Department, cited a surveyed firm in reporting that tax agency staff sometimes refuse to resolve small tax questions over the phone, and instead ask the enterprise to directly visit the agency. “Many enterprises have said that tax officials are not available when they call. This has led to reports of tax officials intentionally refusing to stamp tax forms in a bid to impose ‘unofficial costs.’

According to the survey, many different agencies overlap in responsibility for tax enforcement. Only 80% of respondents said they have been visited by tax officials. Some 9% reported that they have received officials not from tax agencies, but from other sectors like auditing, provincial and municipal inspectorates, market management, natural resources and environment, transport, planning and investment, industry and trade, labour, invalids and social affairs, and even rangers.

According to Smithers, unlike simplification of forms and procedures, changing officials’ behaviour requires a sustained commitment of time and training resources, especially in tax offices with a large number of businesses. It thus requires even stronger political commitment at all levels, together with support from the public.

An uneven playing field for state-owned, local, and foreign firms is another issue the survey has brought to light. Under the survey, 61% of foreign enterprises said they have been visited by tax officials over the past year, and 60% reported that tax officials have failed to respond to their feedback.

The rates are 58% and 52% for local state-owned enterprises and private firms, respectively.

Also, 41% of respondents said they are facing ‘troubles’ in performing tax procedures. The troubles include difficulties in tax declaration, balance sheets, refunds, and registration.

Proposals

In a well-functioning business climate, small changes can have very large effects. Smithers said that ‘Tax policy and the regulatory system have an impact on all businesses, and therefore a small investment in tax reform will result in a very large impact on the business community.”

According to her, improving taxpayer services should be a high priority for the tax administration, and the expansion of e-services and processes to other functions of the tax administration will be extremely helpful in achieving this.

“By taking a customer-centric approach to taxpayer services, the administration will ensure that businesses have a stronger voice both in the legislation-making process and in day-to-day operations,” she said.

However, Ngan of the foreign forwarding firm agreed that the tax sector’s firm-friendliness is improving. 

“Though tax agency issues remain, our firm has faced fewer unfriendly tax officials over the past few years. We expect the situation will further improve,” she said.