A man carries a box of Coca-Cola at a shop in Ho Chi Minh City. Along with some other major foreign companies, Coca-Cola has come under suspicion for evading taxes by manipulating transfer pricing.

While giant foreign companies seem to have engaged in large scale tax evasion with various tricks over the years, the government seems to care only about personal income taxpayers.

Since the beginning of this month, the nation has been shaken by numerous media reports on suspected tax evasion cases.

First, police in Ho Chi Minh City busted at least two giant consignments of foreign luxury goods imported into Vietnam as cheap Chinese goods. Each item was declared to be worth just a few dollars, although it could be priced at up to tens of thousands of dollars when sold at luxury stores.

Police are still investigating the two cases, but it is expected that the government might have lost billions of dong in taxes.

Soon after, it was reported that the HCMC Tax Department suspects beverage giant Coca-Cola Vietnam, which has posted increasing sales since it was founded in 1994, but never paid any income tax because of losses it has suffered, has evaded taxes via transfer pricing manipulations.

As the payments made between affiliated companies for transactions of goods, services and assets that allows multinational corporations to allocate its profits among its companies in high and low-tax countries to avoid paying due taxes, the pricing system has also been allegedly abused by other big companies like Adidas Vietnam, and Metro Cash & Carry Vietnam.

The South Korean-owned Keangnam-Vina, which has invested in Keangnam Landmark Tower in Hanoi, the tallest in Southeast Asia after Petronas Towers in Malaysia, has also come under suspicion.

In fact, local tax agencies recently pointed out that over 460 foreign companies might have deployed the transfer pricing trick just within the first six months of this year, implying uncountable losses to the state budget over many years.

But the consequences of transfer pricing manipulation are not restricted to budgetary losses. They have skewed the local competitive environment. Local companies lose out when competing against foreign companies that are not only allowed to enjoy preferable policies but also given opportunities to evade taxes. And this leads to weakened local firms being acquired or destroyed by their foreign competitors.

Needless to say, this is not the first time suspicions of fraudulent transfer pricing have been raised in Vietnam. They were actually reported years ago, but it seems that related agencies have yet to come up with any good solution to tackle them, thus allowing them to take place for a long time.

On the other hand, the same, apparently clueless agencies have continuously put up amendments to the Law on Personal Income Tax to make sure that the state budget will not decline sharply.

For example, the recommended income-tax threshold was reduced and increased for many times before being set at VND9 million (US$430) per month compared to the current level of VND4 million, when the amendments were passed by the National Assembly last month.

With the same consideration for the state budget’s security, agencies also changed back and forth the time for the amendments to take effect before finalizing it at July 1.

It is estimated that the amendments will mean a loss of VND5 trillion ($240 million) in tax revenues for 2013.

However, compared to the possible losses caused by the tax evasions committed by giant companies which earn trillions of dong, or even tens of trillions of dong a year, is it not clear which problem should be of greater concern to Vietnamese agencies?

It is said that tax agencies only target people with abundant money, not the poor, so Coca-Cola Vietnam and other foreign companies must be poor, and have to be let free to do their cheating.

Meanwhile, local personal taxpayers have to hold their breath and watch long debates between law drafters and economists and lawmakers, before seeing any easing of their income tax burden, which has become onerous in the context of the current downturn.

If related agencies do their job and get tough with the massive tax evasions by foreign companies, the pressure on the state budget will be less, and it will be easier for local companies and people to enjoy tax incentives they need and deserve.

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