According to Government Decree 126/2020 (effective from December 5, 2020), if a business pays low corporate income tax in the first, second, and third quarters but pays a high amount in the fourth quarter, especially with a sudden surge, causing the tax payment rate for the first three quarters to be less than 75% of the total corporate income tax payable, it will be considered late in payment.
Be cautious if Q4 sees a surge in profits for businesses whose operations are heavily focused on Q4 or seasonal factors.
1. Regulations on provisional payment of corporate income tax according to Decree 126
The total amount of corporate income tax provisionally paid for the first three quarters of the tax year must not be less than 75% of the corporate income tax payable according to the annual tax return.
In cases where taxpayers underpay the provisional tax for the first three quarters of the year, they must pay late payment penalties calculated on the underpaid amount from the day following the last day of the deadline for provisional corporate income tax payment for the third quarter until the date the remaining tax is paid into the state budget.
According to this regulation, if a business pays low income tax in the first, second, and third quarters but pays a high amount in the fourth quarter, especially with a sudden surge, resulting in the tax payment rate for the first three quarters being less than 75% of the total corporate income tax payable, it will be considered late in payment.
According to the old regulations, businesses had to calculate their tax liability quarterly and ensure they paid at least 80% of the final tax for the year before January 30th of the following year. This allowed businesses to focus on production and accelerate year-end sales while comfortably paying taxes based on the estimated amount, only needing to carefully review the figures before January 30th. However, under Decree 126, businesses can still make quarterly provisional corporate income tax payments, but must pay at least 75% of the final annual tax before October 30th. If a business's Q4 profit forecast is inaccurate, the shortfall will be calculated from November 1st of that year.
2. This regulation has two shortcomings.
First: Businesses with seasonal operations, where revenue and profits are mainly concentrated in the fourth quarter (such as businesses selling Tet confectionery, Christmas goods, or those producing orders in the second or third quarter but only completing them for delivery in the fourth quarter, etc.), will have to pay taxes in advance; otherwise, they will incur late payment penalties. equal 0,03% per day calculated on the amount of tax overdue. while sales revenue and income are yet to be received.
Monday: Except for businesses with good business forecasting systems, most SMEs, or even large businesses with seasonal operations, find their Q4 business results heavily dependent on market conditions, making it difficult to predict Q4 profits.
3. Opinions from the regulatory body
Responding to Decree 126, Mr. Nguyen Duc Huy, Deputy Chief of the General Department of Taxation's Office, said that the General Department had previously reported to the Ministry of Finance to submit to the Government for promulgation Decree 91/2014/ND-CP (Decree 91) and submitted to the Ministry of Finance for promulgation Circular 151/2014/TT-BTC, abolishing the regulation on quarterly provisional corporate income tax declaration and annual final tax declaration, replacing it with the regulation on quarterly provisional corporate income tax payment and annual final tax declaration.
However, the Deputy Chief of the General Department of Taxation's Office stated that since the implementation of Decree 91, many businesses have been non-compliant and have taken advantage of the regulations on late payment penalties. Instead of making quarterly provisional payments, they accumulate taxes until the deadline for the fourth quarter (usually January 30th of the following year) to pay taxes to the State budget. This results in corporate income tax payable in the previous fiscal year being misappropriated and paid in the following fiscal year, affecting the annual State budget balance. Furthermore, it fails to ensure fairness in tax law enforcement between compliant and non-compliant businesses.
To overcome the above limitations, according to Mr. Huy, the Government has stipulated the calculation of late payment penalties for corporate income tax provisionally paid during the year and declared at the end of the year, as amended in Point b, Clause 6, Article 8 of Government Decree No. 126/2020/ND-CP dated October 19, 2020, as above.
This regulation stems from the practical realities of business operations. In their production and business activities, enterprises have annual production and business plans and strategies, and are completely proactive in determining/estimating their annual production and business results to fulfill the provisional corporate income tax payment requirements.
"The official tax liability will be determined when the enterprise settles its corporate income tax at the end of the tax year. Cases where enterprises experience unusually high production and business results in the fourth quarter that were not anticipated are not common," the Deputy Chief of the General Department of Taxation's Office shared.
Regarding the validity of the above regulation and whether it is retroactive, Mr. Huy stated that the General Department of Taxation will report to the competent authority for specific guidance based on the tax period (some businesses apply the tax period according to the calendar year, while others calculate it from this year to March 31 of next year).