Why was TCM penalized for tax violation?

According to the HoSE, on September 5, 2024, they received a notice from Thành Công Textile Investment Trading Joint Stock Company (HoSE: TCM) regarding a tax violation issued by the Ho Chi Minh City Tax Department under Decision No. 2459/QD-CT dated July 19, 2024 (received by the company on July 24, 2024) and Decision No. 79/QD-CT-KN dated August 27, 2024, concerning the resolution of TCM’s complaint.

Previously, per Decision No. 2459/QD-CT dated July 19, 2024, TCM was penalized VND 3.5 million for filing a tax report late by one to 30 days (Foreign Contractor Tax - FCT) in June 2024. The violation is covered under Clause 2, Article 13 of Decree 125/2020/ND-CP, which outlines penalties for tax and invoicing breaches.

TCM later filed a complaint against Decision 2459/QD-CT, saying that while completing the FCT declaration (Form 01/FCT) online, they incorrectly chose June 3, 2024 as the tax period instead of June 13, 2024.

Furthermore, TCM stated that before receiving the penalty decision, they had not received the administrative violation report (No. 2095/BB-VPHC) from the Ho Chi Minh City Tax Department via the email registered with the tax authority, which prevented them from submitting their explanation on time.

However, following the verification of TCM’s complaint, the Ho Chi Minh City Tax Department confirmed that TCM had submitted the FCT declaration (Form 01/FCT) for the June 3, 2024, tax period on June 13, 2024. The electronic violation report had been sent to TCM’s tax account on July 10, 2024, through the General Department of Taxation’s portal. TCM failed to respond within the required time frame.

A review of the tax portal with TCM's tax ID (0301446221) and the foreign contractor's tax ID (Million Hill International Limited - 0311988103) revealed that the violation report had been forwarded to TCM's electronic tax account. Thus, the company's assertion that it had not received the infraction report was false.

As a result, the Ho Chi Minh City Tax Department issued Decision No. 2459/QD-CT on July 19, 2024, for late filing of the FCT declaration, which was judged lawful. TCM's objection was fully denied.

In terms of business performance, TCM recorded net revenue exceeding VND 1,780 billion in the first half of 2024, up nearly 12% compared to the same period last year, with export markets increasing by 14% to over VND 1,582 billion. Notably, the South Korean market, with an order of 10 million products from E-land, stood out. The company's revenue primarily came from three main segments: finished garments (74%), woven fabric (14%), and yarn (8%).

Post-tax profit surged significantly, reaching nearly VND 135 billion, a 0.67% increase compared to the same period last year. Notably, the profit margin in the garment sector soared to 17%, largely due to a 30% increase in profit margins in foreign markets.

According to Nhất Việt Securities (VFS), the sharp increase in profit margins from foreign markets stems from the fact that in 2023, TCM mainly accepted CMT (cut-make-trim) orders with low-profit margins (12-14%) to mitigate the risk of raw cotton price fluctuations. However, in 2024, FOB (free on board) orders returned, accounting for 90% of revenue with higher profit margins, ranging from 16-18%.

VFS further stated that by the end of July 2024, TCM has secured 90% of orders for its Q3 revenue objective and 82% for its Q4 2024 target.

VFS also forecasted TCM's 2024 business performance, projecting that sales and post-tax profit would be VND 3,892 billion and roughly VND 283 billion, respectively, representing year-on-year improvements of 17.07% and 111.44%.

"Revenue and profit are predicted to skyrocket in 2024 due to a significant increase in order volume. Furthermore, the global macroeconomic outlook, as well as that of Vietnam, is predicted to improve over 2023," VFS stated.