Vietnam’s General Department of Taxation had issued Official Letter 5339/TCT-TT in November 2017 directing local tax offices to create a tax audit plan for 2018. Taxation is a major component of the state budget revenues and as the country’s budget deficit increases, taxpayers and enterprises will continue to face increased scrutiny from tax authorities trying to meet their revenue targets.

Tax audit plan 2018

Local tax officials will be conducting on-site tax audits of at least 18.5 percent of taxpayers under each local tax office. This is an increase from 2017’s target of 18 percent. In addition, at least one percent of taxpayers will face tax inspections, while the remaining will be subjected to tax examinations.

Sectors in focus

The taxpayers to face tax audits will be selected based on the tax risk using tax probable risk system (TPR) system. TPR system analyzes taxpayers risk information for conducting tax audits. As per the Official Letter, tax audits will mainly focus on:

  • VAT refund claiming taxpayers;
  • Taxpayers involved in sectors with significant revenues. It includes oil and gas, petroleum, private hospitals (medical centers), airlines, credit institutions, pharmaceutical companies, hotels and casinos, lottery companies, seaports, airports, and multinational companies;
  • Firms involved in investment project transfers, capital transfers, and franchising;
  • Enterprises with numerous transactions with related parties, including ones who have reported continuous losses or low-profit margins than other enterprises in the same sector;
  • Companies engaged in upcoming sectors such as multi-level trading companies, gaming, digital technology-based services will also face increased scrutiny in 2018;
  • Other sectors include real estate, construction materials manufacturers, natural resource exploitation companies, FMCG companies, and automobile manufacturers/traders.

Minimizing risks

With growing scrutiny from tax authorities, firms need to have a tax risk management system in place to help identify the areas of tax risk in an organization. Once identified, they need to evaluate them to understand the effect and likelihood of occurrence and manage the risk to minimize tax exposure.

With regulators and tax officials taking an aggressive approach in 2018, firms and taxpayers should be proactive in nature, to reduce compliance costs and tax exposures.

Source: Dezan Shira & Associates