According to the Doing Business 2019 report, Vietnam's tax payment index increased by 1,25 points in the report published by the World Bank, but in terms of ranking, this index dropped 45 places, from 131st out of 190 economies.
Although Vietnam's Paying Taxes score is 62,87 points, an increase of 1,25 points compared to the report in Doing Business 2018.
The tax payment index needs reform to improve its ranking.
Representatives from the General Department of Taxation explained that the drop in ranking was due to several reforms designed to facilitate businesses, which have been implemented for several years but have not yet been recognized in Doing Business 2019, such as:
- Remove the list of purchase and sales invoices accompanying the VAT tax return. Meanwhile, the detailed VAT tax calculation still shows that creating the list using Excel takes 90 hours.
- Furthermore, some regulations aimed at simplifying corporate income tax procedures have not been implemented, such as gradually narrowing the gap in the timing of determining taxable revenue between tax authorities and accountants… Therefore, the time spent complying with corporate income tax obligations remains high at 132 hours out of a total of 351 hours (of which the time to prepare the declaration data set is 122 hours out of a total of 334 hours).
According to Ms. Dinh Thi Quynh Van, General Director of PwC Vietnam Co., Ltd., regarding the tax payment index, the World Bank (WB) assesses it based on the following factors:
- Number of tax payments
- Tax payment deadline
- Total tax rate on profits
- Post-declaration indicators include timeframes for value-added tax refunds and tax audits.
- The World Bank chose small businesses, not large ones, so
In the above indicators, the number of hours spent on tax filing in the 2019 Business Environment Report remained unchanged, while the number of tax filings decreased from 14 to 10. However, the biggest reason for the change in ranking is the policy change in value-added tax refund procedures.
Ms. Dinh Thi Quynh Van further stated: “The business assessed by the World Bank is a small enterprise with no investment or export activities during the survey year. Previously, in Vietnam, such businesses could be eligible for VAT refunds, but currently, these entities are not eligible. Therefore, Vietnam's score for this specific section is 0.”
For small businesses, the application of information technology is limited, and consequently, they do not yet have a clear understanding or appreciation of accounting. Most small and micro-enterprises are reluctant to spend money hiring a full-time accountant for daily tasks or to hire professional accounting firms; instead, they employ unprofessional external accountants. This practice wastes time and money for businesses.
Associate Professor Dr. Dinh Trong Thinh from the Academy of Finance also believes that the World Bank's ranking of the tax payment index is not entirely accurate and lacks updates on Vietnam's recent tax reforms, leading to the errors in the ranking drop. According to him, 98% of Vietnam's businesses are small and medium-sized enterprises (SMEs), which have limited accounting and bookkeeping capabilities. These businesses have to self-declare their taxes, while the tax authorities only review them. If a business makes a mistake in its declaration, it must redo it, or if it intentionally violates or evades taxes, it will face severe penalties.
Therefore, tax authorities must provide detailed and clear guidance, assisting businesses in filing taxes correctly and accurately to avoid penalties or having to redo the process. This will save businesses time in filing taxes and make it easier to detect tax evasion and avoidance.
However, the downgrade in the tax payment index also serves as a basis for the tax sector to self-assess and continue to make efforts in the future.
Ease of Doing Business in 2019
The total number of hours per year for businesses to file taxes in 2018 remained unchanged compared to 2017 at 498 hours/year, equivalent to 41 working days (calculated based on 12-hour workday), or approximately 1 month and 10 working days to handle administrative procedures.
Notably, the amount of time businesses are required to prepare documents by authorities is substantial. Businesses spend 457 hours per year preparing documents to fulfill tax obligations such as corporate income tax, VAT, and social insurance contributions, equivalent to 8 working days per month during regular business hours.
In line with the above view, Dr. Phan Duc Hieu, Deputy Director of the Central Institute for Economic Management Research, stated: "Our backwardness is not due to a lack of reform, but rather because other countries have better and stronger reforms. Neighboring countries are also determined, and if we only show the same determination as in previous years, we will never achieve our goals. Our determination must be three, four, or even five times greater than before." However, Vietnam's business environment has not progressed as expected. This poses a new challenge for Vietnam: it needs to make much greater efforts than it is currently doing and implement even stronger reforms.
Challenges always provide the impetus for continuous development.
Regardless, the tax sector needs to seriously reassess its situation, viewing the World Bank's investigation results as a catalyst for stronger, more substantive, and more effective reforms, from the central to local levels. Only then will businesses and citizens save time and money on tax payments.
Ms. Nguyen Thi Cuc, President of the Vietnam Tax Consulting Association, proposed that businesses should promote the application of information technology in accounting, synchronizing accounting records with tax liability calculations. This will reduce the time spent on tax compliance and contribute to reducing tax payment time. In the future, the tax sector needs to make greater efforts and breakthroughs in reforming institutional regulations and procedures to facilitate easier access to policies for businesses, while simultaneously implementing the "electronization" of administrative procedures and providing most public services at levels 3 and 4.
