Tax refund stand-off comes to a head

April 05, 2023 | 19:00
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A range of business associations in Vietnam have addressed their concerns over current tax refund procedures.

The topic was raised at last week’s meeting between the Ministry of Planning and Investment (MPI) and other ministries, agencies, and business associations on cutting down administrative procedures and removing other legal obstacles that are hindering enterprises.

Tax refund stand-off comes to a head
Tax refund stand-off comes to a head

According to the Board for Private Economic Development Research (IV Board) under the Advisory Council for Administrative Procedure Reform, opinions on current tax rules were collected from 30 business associations.

It found that some enterprises are struggling with the delay of VAT refunds, especially wood and rubber companies. There is an unreasonable VAT rate for the fertiliser industry; and there are difficulties in paying VAT for paper producers that need to collect scrap and other businesses that need to collect sand, gravel, and bricks.

Pham Thi Ngoc Thuy, head of the IV Board, told Minister of Planning and Investment Nguyen Chi Dung that the VAT refund process is taking a long time without any specific deadline, and so businesses cannot manage their cash flows and income.

“Enterprises that produce and export wood chips and wood products, for example, estimate that the accumulated amount of money waiting for a refund since 2020 is up to hundreds of millions of US dollars. If this situation persists, many businesses will have to declare bankruptcy,” said Thuy.

Moreover, the process of monitoring wood origins is also said to be spread out, and many stages in tax refund considerations are not suitable in practice, pushing risks into the afforestation stage or the stages of buying and selling raw wood for production and export.

The IV Board noted an example of authorities detecting some violations in planting forests, and buying and selling raw wood in a northern locality. When this occurred, all buyer enterprises stopped importing wood input materials from the location. “That has an immediate impact on supply chains and manufacturing,” the IV Board highlighted in a document sent to the prime minister last week.

In paper production, businesses would like to promote the recycling of used paper towards circular production. “However, when buying paper and scrap from domestic collection channels, most of them do not have invoices, so proof of origin is not guaranteed. Thereby, businesses cannot prove the origin of materials and cannot get a 10 per cent VAT refund,” Thuy added.

According to the Vietnam Pulp and Paper Association, the General Department of Taxation (GDT) agreed for businesses to build lists of collecting materials but the total amount cannot surpass VND100 million ($4,350), which they said is too small compared to the concentrated purchasing needs of most producers.

Meanwhile, fertiliser is not subject to VAT and input materials do not be deducted. Enterprises have to include all incurred VAT in production costs, increasing costs and selling prices, thereby reducing competitiveness as compared to imported fertilisers. Moreover, projects for fertiliser production are also ineligible for VAT refunds for tech equipment, leading to high investment rates and reducing the motivation of enterprises for research and development.

Nguyen Chi Dung - Minister of Planning and Investment

Tax refund stand-off comes to a head

Business development is an important issue for the economy. Even in the context of the pandemic, the ministry has held many meetings to directly listen to the comments and recommendations of businesses and associations, thereby proposing the government issue policies removing difficulties, supporting businesses and employees, preventing supply chain disruptions, restoring production, and increasing export value.

Currently, production and business are struggling and mean reduced output, revenues, and sales. There will be more uncertainties and risks in the time coming. If not quickly adapting and adjusting decisions to support businesses, the general growth of the country and the targets set forth will be affected. If businesses are not well, it will be risky for state budget revenue, jobs, social welfare, and security. So business development and recovery are priorities of the government.

Comments and recommendations related to funding procedures, production expenses, credit and tax, union dues, work permits, and more will be compiled and sent to the government and ministries. Some issues are being amended and completed in legal documents – for example, the government is amending the Law on Bidding and the Law on Real Estate Business to overcome bottlenecks, and expects business associations to study and comment on these drafts.

The government will summarise and submit to the National Assembly for approval to unlock resources and remove woes for businesses, so they can accelerate production and business activities.

In July 2022, the government issued Decree No.49/2022/ND-CP amending the law on VAT, and the GDT also delivered documents on strengthening the review, inspection, and detection of taxpayers with signs of risk on invoices, against VAT refund fraud.

But companies like rubber group Hoang Dung Co., Ltd. said that they have not received a VAT refund since 2021, and the amount is up to millions of US dollars.

“The cause of the congestion is due to the tax department’s request to verify documents and invoices of the origin of rubber products from the first to the last stage, including all intermediate stages. Without enough verification documents, the rubber exporters cannot be entitled to a tax refund,” said a Hoang Dung representative.

“The tax department also requires payment documents for rubber exports to show the account information of the payer or remittance,” he added. “We don’t know what the legal regulation is for this requirement.”

To solve these troubles, business associations have asked the Ministry of Finance to classify the process of VAT refund. If taxpayers are long-standing and reputable enterprises, they should be post-checked; and if they are new-registered businesses, dossiers should be checked carefully before refunding tax.

“The authorities also need to re-evaluate the high-risk stage of tax fraud for supervision; as well as clarify the responsibilities of each enterprise in the chain, instead of imposing sanctions on enterprises at the final production stage,” said Hoang Dung’s representative.

For the paper industry, businesses propose to pay VAT for waste collectors, then ask for tax refunds to solve origin issues. Fertiliser groups have asked for an amendment to the law to impose a tax on fertiliser to improve competitiveness, for example at 5 per cent.

VAT refund as per Decree 49

For project of a company that has already made business registration

New projects (including those divided into many phases) under the Law on Investment in the same city or province, or in a city or province other than the one where it is headquartered.

Entitled to a VAT refund: a business establishment that has already made business registration and registers to pay VAT by the tax credit method; has new projects at the investment stage; or oil and gas prospecting, exploration, and development projects still at the investment stage and valued at VND300 million ($13 million) or more.

The business establishment shall declare VAT separately for each project and must offset the input VAT amount of the venture with the payable VAT amount of production and business activities being carried out (if any). After offsetting, if the accumulated input VAT amount not yet fully credited is valued at $13 million or more, it shall be entitled to a VAT refund.

In cases where the project has been inspected, examined, and audited by competent state agencies, the tax office may use the results to decide on a VAT refund.

For projects engaged in conditional production

VAT refund for ventures of establishments engaged in conditional production and business lines that fall into the following conditions shall be entitled to VAT refund: projects at the investment stage, as prescribed by investment and specialised law, which have been licensed to conduct business in conditional production and business lines by the competent state agency according to licences, certificates, written certification, or approval; which are not subject to the licensing; and which do not require a licence.

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