On October 19, 2020, the Government issued Decree No. 126/2020/ND-CP (“Decree no. 126”) detailing a number of articles of the tax administration law. The newly promulgated Decree which was expected to facilitate management of state agencies, as well as the tax payment of enterprises more efficient and smoothly, however, is sparkling controversy over the regulations on provisional payment on a quarterly basis.
Accordingly, Article 8.6, Decree no.126 set out: “The total amount of provisional corporate income tax for the first three quarters of the tax year must not be less than 75% of the payable corporate income tax according to the annual finalization”. In case the enterprise does not meet above provisional payment requirement, a late payment interest will be imposed on the overdue amount with the rate of 0,03% per day. The period over which late payment interest is charged is a continuous period from the day succeeding the last day of the third quarter payment deadline to the date of payment.
By issuing this regulation, policymakers probably aimed to ensure tax collection in a timely manner, avoid losses of provisional payment in the first three quarters when businesses manage to declare their income at the end of the year. This aim, however, can only be achieved if the business is stable during a year, in case the enterprise promotes activities at the end quarter, the rule creates a major shortcoming.
In fact, even though, the enterprise has properly paid the provisions tax the first three quarters of the year, but at the end of the year, if the fourth quarter’s income is greater than the average of the first three quarters, the enterprise still has to pay late payment interest. It is so unreasonable that tax administration directly affects business decisions and plans, violates the freedom and autonomy of enterprises.
The new decree will take effect on coming December 5th. The concern of many businesses is whether they have to pay a late payment fine if their taxable income in the fourth quarter of 2020 exceeds the average level of the first three quarters of the year, a period when most commercial activities are stalled due to Covid-19 pandemics. In the time being, enterprises are actively promoting business and production activities to recover since the Covid-19 pandemics is temporarily controlled. To facilitate recovery process, the State had issued an array of encouraged policies, this regulation, however, is against the general purpose, causing confusion and frustration for many business subjects. In order to ensure the reasonable and effective application, it is necessary to have detailed instructions and guidance from the competent authorities in the implementation of Decree no. 126.