The Finance and Budget Committee of the National Assembly is currently preparing for an explanation session regarding value-added tax (VAT) refunds.  The business community not only hopes that this session will help address issues related to VAT refunds but also anticipates that the problem of “paralyzing business operations through official letters” will be clarified and appropriate solutions will be proposed.

The law stipulates 40 days, but businesses have been waiting for… two years

Despite numerous directives and urgings from leadership at various levels, the VAT refund process has still not been implemented and resolved, and businesses are facing significant difficulties.  This observation was made by the Vice Chairman of the National Assembly, Tran Quang Phuong, during the meeting of the National Assembly’s Standing Committee on August 16, 2023, regarding voluntary work.

According to the National Assembly’s report on voluntary work in July 2023, voters have reported that the tax authorities’ implementation of VAT refund responsibilities for export businesses has significantly impacted capital, production, business operations, and the reputation of these businesses.

Previously, during the conclusion of the interpellation session of the National Assembly’s Standing Committee on August 15, 2023, National Assembly Chairman Vương Đình Huệ stated that the number of businesses submitting letters regarding VAT refund issues to the National Assembly and the Chairman of the National Assembly was still increasing.

The time limit for processing VAT refund applications has been specifically defined in the Tax Management Law of 2019.  According to this law, in the case of businesses subject to refund before inspection, the VAT refund should be processed within six working days, while for businesses subject to inspection before refund, the maximum processing time is 40 days.  The law also specifies three conditions that export businesses must meet to be eligible for a VAT refund: having an export contract, submitting a customs declaration, and making payments through banks.  Therefore, if export businesses meet these conditions, the tax authorities are required to process VAT refunds.

However, in practice, the VAT refund process often takes much longer and does not adhere to the legal provisions.  Some foreign direct investment (FDI) businesses have been waiting for up to two years without receiving their VAT refunds, with accumulated amounts reaching billions of Vietnamese dong.  This reality highlights the need to reevaluate clear policies and refund procedures.

Businesses that pay input taxes naturally should receive output tax refunds – this is the obligation of the state, and there should be no need for businesses to plead for it. “If we put ourselves in the position of these businesses, can we survive?” – the Chairman of the National Assembly said.

According to business feedback, certain tax department documents complicate business operations and hinder the VAT refund process.  For instance, in a recent letter sent to the Chairman of the National Assembly, Vương Đình Huệ, the Vietnam Timber and Forest Product Association suggested that if Circular 2124 dated May 22, 2020, and Circular 633 dated March 7, 2022, issued by the General Department of Taxation are not repealed or amended, the problems in VAT refunds will not be effectively resolved.

Specifically, Circular 2124 stipulates that “during inspections, the Tax Department must actively coordinate with law enforcement agencies and other relevant agencies in the region, such as customs, border guards, forest rangers, in determining the origin of wood…” and “for goods with raw materials directly purchased from individuals based on cargo manifests, direct verification must be conducted for each individual based on risk factors.  When inspecting transportation means, it is necessary to cross-reference the movement schedule of each vehicle with each driver…”

Circular 633 regarding inspections and audits of businesses with VAT refund risks explicitly states that “implementation should be carried out in February 2022 and completed no later than May 2022.”  The document also requires that for the input of businesses with VAT refunds, the inspection/audit work on F0 enterprises should focus on cross-referencing, verification, and clarification of any irregularities (if any) related to VAT refunds of enterprises through the various stages from F1, F2, F3… to the final stage as instructed in the documents of the General Department of Taxation…  Concerning the output, it should concentrate on reviewing and verifying risk-related activities related to export operations (customs documents, bank payments, verification of information about import partners…).

According to the Vietnam Timber and Forest Product Association, these regulations pose difficulties for businesses.  Determining the inputs and outputs of businesses with VAT refund records, all the way down to the individuals who grow forests or import goods is time-consuming and resource-intensive.  It is not feasible and leads to violations of the VAT refund deadline.

Is a Circular Above the Law?

Legally speaking, circulars are not legislative documents and cannot supersede the provisions of the law. However, in practice, there are many such circulars, not only involving of VAT refunds.

For example, Circular 1798/TCT-TTKT issued by the General Department of Taxation on May 16, 2023, requires businesses to explain invoices related to transactions with 524 businesses identified as having tax risks, as listed in the appendix.

This circular has left businesses frustrated because when they make purchases; the invoice issuers are still operating, and the electronic invoices are issued with tax authorities’ approval, so it cannot be said that these invoices are invalid.  Meanwhile, the responsibility for managing businesses that evade tax after selling their goods falls under the purview of the tax authorities and business registration authorities.  Therefore, requiring businesses to explain invoices for purchases from tax-evading businesses and holding them accountable for another business’s actions is highly unreasonable.

Furthermore, matters related to the rights and obligations of businesses should be defined by law, not in detailed implementing guidance documents, especially circulars.  Nevertheless, in recent times, many businesses have had to invest time and effort explaining a slew of issues to tax authorities regarding so-called “ghost invoices” as required by circulars, and they face the risk of penalties despite not committing any wrongdoing.

The Finance and Budget Committee is preparing for a VAT refund explanation session, to prevent profiteering, corruption, and negative practices in tax policies while strictly adhering to the provisions of the Tax Management Law.  This session needs to identify the policy bottlenecks and current VAT refund procedures and find ways to expedite the refund process.  Even the issue of businesses being penalized for delayed tax payments should be considered.  Just as businesses are penalized for late payments, so too should tax authorities face consequences for late refunds.

Moreover, the business community is eagerly awaiting the explanation session to clarify the situation of “official letters paralyzing businesses” in the tax sector as a whole. Are these circulars issued by tax authorities appropriate?  Circulars that contain legislative provisions – which are inconsistent with the Law on Promulgation of Legal Documents – should be identified and promptly addressed.

During a meeting of the National Assembly’s Standing Committee, Chairman of the National Assembly Vương Đình Huệ stated that VAT refunds are a pressing issue that has been widely covered in the media, discussed by voters, and addressed by the National Assembly.  Businesses that pay input taxes naturally should receive output tax refunds – this is the obligation of the state, and there should be no need for businesses to plead for it.  “If we put ourselves in the position of these businesses, can we survive?” – the Chairman of the National Assembly said!

Businesses are struggling due to the Covid-19 pandemic and a challenging economic environment. At this time, they should not have to bear unnecessary burdens. Businesses that violate the law should be dealt with firmly, but the situation of “a few bad apples spoiling the bunch” should not be allowed, especially when it comes to complying with laws enacted by the National Assembly.      

Read the original article in Vietnamese at The Saigon Times.