Vietnam has found an effective way to crack down on tax laggards as it struggles to fund infrastructure projects and curb rising debt: make the names of the offending businesses public to shame them into paying up.
The Ministry of Finance published a first-ever list of about 600 companies that owe taxes overdue by more than 121 days on its website July 21. Tax authorities vowed to freeze bank accounts of offending companies and deduct past taxes.
“They don’t want to end up like Greece,” said Fred Burke, managing partner of Baker & McKenzie (Vietnam) Ltd. in Ho Chi Minh City. “They definitely need more revenue to pay off the public debt. There is a lot of infrastructure coming online and the government needs to issue bonds to pay for these roads.”
While the public embarrassment netted quick dividends with 65 Hanoi-based companies paying their taxes, according to Giao Thong newspaper, the country will need to dig deeper for funding. Vietnam’s fiscal accounts are emerging as a source of concern and its debt servicing costs could pose an increasing burden on its budget, the World Bank said this week.
The tax dues of companies named by the finance ministry totals 12.7 trillion dong ($582 million), Tuoi Tre newspaper said, citing the statistics office. In the past, the government leaked names of companies to the local media, Burke said.
By making the list of offending companies public, officials are “bringing more transparency” to the system, said Victoria Kwakwa, the World Bank’s Vietnam country director. “If it’s done consistently and in an objective way, not targeting certain enterprises, it’s very good and important.”
Complex Rules
Topping the name-and-shame list is Song Da-Thang Long Corp., a Hanoi-based real estate company, that needs to pony up 375.2 billion dong in back taxes, according to the finance ministry. Calls to the company Thursday went unanswered.
Viglacera Corp., a Hanoi-based glass manufacturing company that held its initial public offering last year, owes 88.4 billion dong in taxes, the ministry said. Luyen Cong Minh, the parent company’s chairman, didn’t answer his mobile phone.
Bitexco Group, a Hanoi-based real estate company that owes 22.8 billion dong in taxes and is on the list, has created a “plan to pay off this debt,” company spokeswoman Hoang Thi Lan Anh in an e-mail.
The lack of clarity is a challenge. While some companies may indeed be evading taxes, others may simply be entangled in complex regulations that can vary from province to province, Burke said. In addition, the government doesn’t provide any services to help companies navigate the system, he said.
“The rules are changing all the time and interpretations are all over the place,” Burke said.
Poorly Managed
Vietnam’s national debt may climb to a record 64 percent of gross domestic product by the end of 2015, according to some estimates. Prime Minister Nguyen Tan Dung began warning about “great payment pressure” earlier this year, which may have triggered the tax department’s action.
“This is the first time we officially made public such a big list,” said Nguyen Duc Chi, the finance ministry’s chief administrator. “We want to increase transparency and enforcement of tax obligations.”
Naming companies that haven’t paid taxes may benefit the economy in the long-term by weeding out poor performers, said Nguyen Dinh Cung, head of the Central Institute for Economic Management in Hanoi.
“This may force some companies on the list to file for bankruptcy,” he said. “It’s actually good for the economy, as it will help clean up poorly managed businesses.”