Why do real estate businesses owe high taxes?

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Some experts say that real estate businesses are always short of capital, so they owe taxes. The high tax debt in the first 8 months of 2019 mainly focused on construction and real estate, accounting for 51.72 percent of the total receivable debt. Photo: T.H

Naming the big debt business

Ho Chi Minh City Department of Taxation has just released a list of 1,144 debt-owing businesses, with a total debt of VND2,171.5 billion, of which hundreds of businesses owe billions intax debt. On this tax debt list, there are three enterprises owing more than VND100 billion; thirty enterprises owing tax from VND10 billion to VND100 billion; five enterprises owing from VND30 billion to VND40 billion, five enterprises owing from VND20 billion to VND 30 billion and seventeen enterprises owing from VND10 billion to VND20 billion. For enterprises with tax debts of less than VND10 billion, there are thirty-one enterprises with debts of over VND 5 billion, two hundred and twenty-eight enterprises with debts of between VND1 billion and VND5 billion, while the remaining owe from VND200 million to under VND1 billion. Notably, the majority of cases of tax debt are related to enterprises operating in the field of real estate and construction.

Topping the list of tax debts this time is Thanh Ngan Real Estate Co., Ltd.By the end of August 2019, this company owed more than VND153.1 billion to the Tax Department of District 6. As of April 2019, when the Ho Chi Minh City Department of Taxation published a list of businesses that owe taxes, Thanh Ngan Real Estate Co., Ltd. topped the list with a debt of over VND190 billion. After being "denoted", the company paid taxes, reducing the debt significantly.

Also having a high tax debt among real estate businesses is Bach Khoa Viet Trading - Consulting - Investment - Construction Joint Stock Company, with a debt of VND99.1 billion; Hoang Phuc Housing Development Investment Construction Company Limited, owing VND51.3 billion; Diep Bach Duong Real Estate Company Limited, owing more than VND38 billion; Saigon Southern Real Estate Joint Stock Company, with a debt of nearly VND16 billion.

According to the HCMC Tax Department, most businesses' tax debts are owed on land use fees. The total amount of receivable debts (the tax amount to be paid up to 90 days and the tax debt amount of over 90 days) to August 31, 2019 is VND14,101 billion, up 58.33 percent compared to December 31, 2018. In particular, the highest debt related to real estate and debt related to land is VND3,644 billion, up 173.36 percent compared to December 31, 2018; debt from taxes and fees is VND6,106 billion, up 54.33 percent compared to December 31, 2018; fine and late payment interest was VND3,923 billion, up 9.1 percent compared to December 31, 2018.

Decrease tax debt

Explaining why the tax debt of real estate businesses was soaring, some experts say that real estate businesses are always short of capital, so tax debt is understandable. Particularly, the interest rate for bank loans requiring collateral has reached over 11% per year. And the tax debt is not a mortgage – businesses can use the tax debt to do business and production. As a rule, the current penalty for late tax payment is 0.03 percent / day based on the amount of late tax payment, equivalent to about 0.9percent / month, lower than the investment loan interest. This level of fine is not enough to deter enterprises that have not complied with the fulfillment of the state budget obligations. According to Ho Chi Minh City Tax Department, tax debt is on the rise, tax collection measures often applied such as phone calls, sending messages, issuing notices and enforcement decisionsseem ineffective. There are businesses that owe tax debts. For example, an enterprise owes overdue taxes and accepts late payment penalties, but less than 90 days to avoid tax coercion.

According to Ho Chi Minh City Department of Taxation, many real estate businesses that owe a few dozen to a few hundred billion dong tax are not paying to the state budget as mentioned above, causing the tax debt from the housing and land segment in Ho Chi Minh City to skyrocket. The high tax debt in the first 8 months of 2019 mainly focused on construction and real estate, accounting for 51.72 percent of the total receivable debt.

In order to handle the above tax debts, the HCMC Tax Department has implemented many collection solutions as prescribed. Accordingly, for debts of less than 90 days, the units shall urge the debt collection by telephone calls; SMS; issue notices of tax arrears and late payment interest.

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For debts over 90 days, the HCMC Tax Department has applied strong measures to enforce tax debt as prescribed, such as blockingbank accounts to deduct tax paymentand preventing the use of invoices by announcing the invoices are not valid for use. The total number of enforcement decisions issued in the eight months amounted to nearly 30,000. The tax debt amount corresponding to the enforcement decisions is VND14,500 billion. Besides, Ho Chi Minh City Department of Taxation has published on the media more than 3,300 businesses that owed tax debts in accordance with the debt management process, with a total tax debt of nearly VND8,000 billion. For the above-mentioned tax debts, the HCMC Tax Department has applied the measures to enforce tax debt as prescribed for businesses.

Many synchronous solutions were issued; the tax collection result of Ho Chi Minh City Tax Department in the past 8 months was VND5,264 billion, reaching 59.1percent of the 2018 debt transferred. In particular, revenue from debt management is VND3,053 billion, and tax debt collection is VND2,211 billion. By the end of 2019, Ho Chi Minh City Department of Taxation is drastically taking measures to recover tax debts, with the goal of reducing tax debt to the lowest level.