Diplomats, elites abuse tax privilege

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More than 1,200 diplomatic cars are driven by super rich Vietnamese citizens illegally
 
  Cars technically belonging to diplomats seized by the Phu Tho Police Department. Police say these cars were being used illegally by Vietnamese citizens. Photo: Tien Phong

It has for long been an elephant in the room that everyone pretends not to see, but Phu Tho Province has broken ranks, becoming the first locality in Vietnam to confiscate foreign diplomatic cars that were being sold illegally.

Its action has prompted central agencies to sit down and discuss the issue.

A source told Vietweek that a meeting was held on Wednesday (October 3) between the Ministry of Foreign Affairs, Ministry of Public Security, Ministry of Finance and Ministry of Transport. Details of the discussions were unavailable as of press time.

Senior Lieutenant Colonel Pham Khac Hoat, Phu Tho's chief economic crimes investigator, told Vietweek on Tuesday that his unit has seized 25 diplomatic cars since April 17 and decided to auction 11 of them. The confiscated cars include top luxury brands like Porsche, Bentley, Mercedes and Lexus.

"We have followed relevant legal documents [to conduct the auction]," he said.

Phu Tho is 80 kilometers (50 miles) from downtown Hanoi and 50 kilometers (31 miles) from the Noi Bai International Airport.

Under current regulations, a foreign diplomat is allowed to temporarily import a car to use during his/her term in Vietnam without paying any taxes or fees.

When the term ends, he/she has to take it out of Vietnam or sell it. If the latter option is chosen, they are obliged to ensure that the next buyer pays relevant taxes.

However, Hoat said, many diplomats have evaded paying taxes by signing a contract authorizing the Vietnamese buyer to sell the car and pay relevant taxes and fees.

The buyers then just use the car without paying any duty. Because diplomatic cars have a special license plate with the letters "NG" in red instead of the normal black, the buyers enjoy diplomatic exemption and no traffic police officer pulls them over, he said.

Hoat said in all these cases both diplomats and the buyers violate the rules, the former by evading their tax obligations and the latter by purchasing the cars illegally.

According to the latest available statistics, released by the Finance Ministry in 2010, there were 4,366 diplomatic cars in Vietnam. These included 230 undergoing procedures for being re-exported and 1,758 being condemned or sold legally. Of the rest, more than 1,200 cars are being driven illegally in the country, the ministry said.

Also in 2010, the Finance Ministry drafted a circular aiming to force the actual buyers to pay relevant taxes and fees but it was never finalized because of several controversies.

According to Pham Duy Khanh, deputy chief of the anti-smuggling division under the Vietnam Customs Department, there are no regulations to handle foreign diplomats evading taxes.

"Circular 03/2007 stipulates that diplomats have to pay all taxes to be eligible to go back to their country [when their term ends]," Khanh said.

"However, they also enjoy diplomatic immunity and it is impossible to issue administrative measures," he said, adding that he had reported the issue to higher authorities but had received no response so far.

Major Nguyen Tien Dung of the Phu Tho Police Department told Tien Phong (Vanguard) newspaper that whenever they seize a diplomatic car, they receive numerous calls from "many officials" pressurizing them to let it go.

A Hanoi-based diplomat, speaking with Vietweek on condition of anonymity, said that the actual problem is that these cars have been bought by children of the local elite and police could not handle them.

"When I spoke to the police, the problem is that they know who is driving those cars: the children of the elite. So for the police, it is very difficult for them to investigate," he said.

"People are not paying taxes. The government is losing a lot of income."

He rejected the argument that being tough in handling the issue could harm diplomatic relations: "It is the other way around"¦ We are not giving the impression that Vietnam is a haven for tax evasion.

"We are talking about very expensive cars like Rolls Royce, Ferrari, Maserati that they should be paying millions of dollars in taxes for but are not."

Another Hanoi-based foreign diplomat, who also declined to be named, said some diplomats were even selling their "quota for a diplomatic car registration" and it has been "a long standing practice."

"The practice is illegal and benefits both parties - the seller, who usually is a diplomat from a poorer country and for whom the extra US$10,000-20,000 can make a lot of differences, and also the buyer, who can evade paying import taxes especially for very expensive cars."

She said the buyers of the number plates also then enjoy the benefit of diplomatic status on the road because traffic police do not usually stop such cars.

"I know that many embassies now remind their staff that it is illegal to sell their diplomatic car quota for money," she said, adding that it is easy to spot such illegal cars as diplomats do not drive super luxury cars like Rolls Royces.

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