In recent months, a directive from the Tax Administration has been issued allowing provincial tax departments, under Article 163 of the Direct Tax Law, to demand estimated (advance) tax from certain taxpayers. This decision appears aimed at preventing the loss of government revenue, but in practice it can become one of the most important liquidity concerns for companies.

1. What exactly does Article 163 say?

The legislator has authorized the Tax Administration to demand a taxpayer’s tax as an advance (estimated) payment and in a precautionary manner in cases where tax evasion or tax loss is likely. But the point is: When broad application of this article ceases to be an exception, it effectively becomes a tool to pre-collect next year’s tax without the underlying income actually having been realized. Such a measure may conflict with the spirit of tax fairness.

1. Change of approach in 2024; focus on large companies

Until this year, Article 163 was applied more often to small taxpayers. But according to a recent letter from the Deputy for Tax Revenues, now large companies, banks, and financial institutions are at the top of the list for advance collection. Put simply, the Tax Administration intends to increase its cash collections immediately even if this comes at the cost of reducing firms’ liquidity.

1. Which taxpayers are exposed to advance demands?

Under the new directive, three groups are prioritized:

• Taxpayers who have objected to last year’s tax.
• Taxpayers who have refused to pay a demand notice or their finalized tax.
• Taxpayers who have not yet rescheduled or paid their overdue liabilities.

1. The objection path and the risk of enforcement

   

Unfortunately, the procedure the Tax Administration has adopted here treats application of these regulations as outside the rules for issuing an assessment notice, which means there is no opportunity to object under Articles 238 and 244. After issuing a demand notice and notifying the taxpayer of the debt, if the taxpayer does not comply, an enforcement order is immediately issued under Article 210 of the Direct Tax Law, giving a 30-day period for payment; otherwise, enforcement operations begin. The only remaining route is an appeal to the Board under Article 216, which typically requires collateral or a bank guarantee to stop enforcement actions. Therefore, delay in responding can lead to account freezes or direct withdrawal of funds.

1. Economic consequences for businesses

Broad enforcement of Article 163 can have immediate and tangible effects on businesses:

• Withdrawal of cash from the company’s operating cycle,
• Reduced working capital and increased need for bank financing,
• Higher financing costs and downturns in production or services.

From a macro perspective, this policy may pre-empt next year’s tax revenue and leave the government facing a deficit in the following period.

1. What should be done? Practical recommendations for taxpayers

To reduce risk and manage exposure from enforcement of this directive:

• If a demand is unreasonable, request an adjustment or installment plan.
• Obtain help from experienced tax and legal advisers to produce technical documentation and prepare a well-founded objection.
• If an enforcement order is issued, immediately file a complaint under Article 216 and request referral to the Article 216 Board; after referral, because requests are handled out of order by this board, petition for an order to halt enforcement operations.

1. Summary for financial managers and accountants of companies

Article 163 is by nature a tool to prevent tax evasion, but broad interpretation and wide application of it can turn it into a tool that pressures the liquidity of even sound taxpayers. Businesses must be vigilant, document their position, and act promptly to avoid potential harm.

Final note: Balancing “protecting the government’s rights” and “safeguarding companies’ cash flow” should be the central consideration in enforcing Article 163. Pre-collection of tax should not replace tax fairness.