Foreign firms post losses to avoid taxes
by Le Hung Vong
Despite huge annual sales turnovers, many foreign direct investment (FDI) enterprises in HCM City have declared losses for several consecutive years to avoid tax, reports the Sai Gon Giai Phong (Liberated Sai Gon) newspaper.
According to the HCM City Taxation Bureau, most of the 20 FDI enterprises it has studied have reported losses while attaining annual turnover of tens of millions US dollars and continuing to expand their business and production.
The bureau pointed to a Taiwan-based garment company, saying it has reported losses over many years despite a 10-fold increase in its turnover and operational scale during the same period.
After the tax evasion was discovered and these FDI enterprises were asked to explain, eighteen of them suddenly reported profits for 2009.
As many as 708 of 1,254 FDI enterprises that made tax declarations in 2008 reported losses. Most of them specialised in manufacturing, garments, footwear, and communications, and were from Asian countries and territories.
South Korea ranked the highest in enterprises reporting business losses, making up 30 per cent of the total loss-reporting companies; followed by Singapore (12.57 per cent), Japan (9.04 per cent) and Taiwan (7.49 per cent), according to Sai Gon Giai Phong.
The Dien Dan Doanh Nghiep (Business Forum) news magazine says since 1998, over 50 per cent of FDI enterprises making tax declarations at HCM City Taxation Bureau have reported losses.
The newsmagazine explained the "false losses, real profits" situation was created by using "price transfer" strategy, which means the FDI enterprise raised the prices of materials bought from its parent company abroad. This activity fetched real profits to the parent company abroad while causing false losses to the FDI enterprise in Viet Nam.
This strategy is made possible as these FDI enterprises' customers and suppliers are also their parent companies and thus able to transfer profits abroad where corporate income tax is exempted or lower than that in Viet Nam.
The profit transferring mode also helps FDI enterprises dodge corporate income tax and profit transferring fees.
Taxmen said while over 50 per cent of foreign-invested garment companies declared losses, most Vietnamese-invested garment enterprises earned profits in the same period.
The taxation agencies remained powerless in these "price transfering" situation, they added.
Nguyen Trong Hanh, deputy chief of HCM City Taxation Bureau, was quoted by the Business Forum as saying that the taxation agencies faced difficulties in combating "price transferring" as there was no mechanism for pricing materials imported from FDI enterprises' parent companies.
To deal with the situation, deputy chairwoman of HCM City People's Committee Nguyen Thi Hong has signed a document asking relevant departments and agencies to enhance measures to prevent tax evasion and fraud.
The city's Department of Foreign Affairs has been told to provide information on FDI companies that have evaded tax or committed fraud while taxation officials have been asked to focus on inspecting companies that have reported losses for several consecutive years.
Auto sales plunge
Car makers and importers are highly concerned about a sharp fall in auto sales last month.
According to the Viet Nam Automobile Manufacturers Association (VAMA), February sales of all its members dropped by 34 per cent compared with the same period last year while importers reported a decrease of up to 40 per cent in the sale of imported cars over the corresponding 2009 period.
VAMA member companies sold 2,560 more units in January than in February. The association blamed the poor February performance on a 47 per cent shrinkage in demand for sports utility vehicles and multi-purpose vehicles. Sales of commercial vehicles last month were down 53 per cent from a year ago, but VAMA put passenger car sales volume at 1,615 units, up 57 per cent.
With the figures for January and February are combined, however, sales of VAMA members grew 7 per cent year-on-year to 11,355 units, thanks to better results in January.
The local auto industry is facing great difficulties as vehicle registration fees will be increased to 10-12 per cent of the vehicle's cost from the previous 5-6 per cent. Automakers and auto importers early this year announced higher prices since VAT on automobiles has been doubled to 10 per cent from January 1 onwards with the removal of subsidies announced last year in the wake of the global economic crisis.
In addition, the Vietnamese dong has declined about 3.3 per cent against the US dollar, leading automakers to raise their selling prices from this month.
According to the Staticstics Bureau, February auto import turnover amounted to $39 million for 2,500 units, dropping by 26.5 per cent compared with January. Auto imports in the first two months totalled 5,900 units worth $94 million.
The owner of an auto salon in HCM City's District 3, who declined to be named, said auto imports would continue to slump in March.
Low-cost rival
National flag carrier Viet Nam Airlines (VNA) has asked the Prime Minister not to ratify the investment by Malaysia's AirAsia Bhd in the local private carrier Vietjet Air (VJA) to set up a Viet Nam-based low-cost airline named Vietjet-AirAsia.
In a recent report sent to the Government Office, VNA said: "... with its plan to cooperate with Jetstar to form a cost-based alliance in Asia-Pacific and its strategic expansion plan, AirAsia's investment in Vietjet is a big concern for Viet Nam's aviation market."
The report said foreign airlines have always tried to invest in air carriers based outside their homeland to use flying rights on domestic routes in these countries, because airlines are not allowed to operate flights on domestic routes in other countries.
Allowing budget airlines to fly on domestic and international routes to and from Viet Nam will certainly affect local carriers' operation and development, VNA claimed.
The VNA report said that with a 30 per cent stake in the joint venture, AirAsia would become member of Vietjet-AirAsia's management board and thus can, to some extent, run the newly-established airline in their favour.
"We have insisted that all acquisition procedures [for a local airline's shares] must be properly performed," VNA spokesman Le Hoang Dung told Viet Nam News on a telephone interview last Friday .
VNA's complaint follows AirAsia's announcement early last month that it would purchase a 30 per cent stake in Vietjet. According to the representative of AirAsia in Viet Nam, Bui Duc Hanh, the share acquisition was approved by the Ministry of Transport on February 9.
Nguyen Duc Tam, general director of Vietjet Air, said VJA is a private company and VJA's selling of 30 per cent stake to AirAsia is a legal action under the Vietnamese law.
Tam was quoted by the Transportation news magazine as saying that AirAsia is but a share-holder of VJA and all strategies for VJA operation and development are decided by its management board, based on majority consent.
Although the contents of the share acquisition contract have not been released by the concerned parties, there are concerns that it would create favourable conditions for setting up a local airline company and selling its shares to foreign partners soon after it is licensed, the magazine said.— VNS