Value-added tax (“VAT”) is not only a financial instrument of the State to control enterprises, but also an important tool to intervene in the economy. During market fluctuations and difficulties, the government has launched tax reduction policies to minimize the negative impact of the market on domestic enterprises. However, the VAT reduction policies in 2022 and 2023 have caused much controversy in implementation, especially in determining the appropriate tax rate for each group of goods and services. These policies make it difficult for companies to comply, and directly affect their rights and financial obligations. In the following article, we will focus on using a specific case affected by the VAT reduction policy to highlight the shortcomings that companies face when implementing these seemingly advantageous policies. 
1. Difficulties in determining the type of goods subject to VAT reduction
Recently, the National Assembly’s published Resolution on VAT reduction has received positive reactions due to the need to continue the VAT reduction policy in the middle and end of 2024. Previously, the policy of reducing VAT from 10% to 8% for some groups of goods and services was implemented in 2022 and 2023, as specified in Decree 15/2022/ND-CP ("Decree 15") and Decree 44/2023/ND-CP ("Decree 44"), bringing double benefits to businesses and people in the context of a volatile economy. However, both tax authorities and companies are finding it difficult to implement these policies in practice.
In principle, Decree 15 and Decree 44 were issued based on the Business Code of Vietnam under Decision 43/2018/QD-TTg, which is used to classify the current business sectors in Vietnam. However, it is easy to rely on the law and determine goods or services subject to 8% VAT rates. The reality shows that the guidance of tax authorities has only given general answers and recommendations to enterprises on the determination of business lines and products provided in Decree 43/2018/QĐ-TTg, Decree 15 and Decree 441. The author believes that the Ministry of Finance's answer cannot solve all the obstacles that arise during the implementation of the tax reduction policy, and the determination of VAT rates of 8% or 10% is still difficult to follow. There have been cases where companies follow the guidance of the tax authorities of one locality, but such guidance is not accepted by the tax authorities of other localities, leading to obstacles in the implementation of tax reduction policies, for example, as in the case mentioned below.
On May 30, 2014, the Quang Ngai Provincial Department of Taxation issued Decision 839/QD-CTQNG to resolve the first-time complaint of Millennium Furniture Co., Ltd ("Millennium Furniture"). According to the Quang Ngai Provincial Department of Taxation, after comparing the industry code of foam products in Appendix I of Decree 15, Millennium Furniture is only allowed to declare and deduct 8% input VAT instead of 10% as declared, and the complaint is unfounded. Previously, Millennium Furniture filed a complaint for not being refunded the amount of VND 2,316,876,804 according to Notification No. 534/TB-CTQNG-KDT and 535/TB-CTQNG-KDT dated 30 January 2024 from Quang Ngai Province Department of Taxation. 
(Nguồn: Tạp chí Kinh tế Sài Gòn)
Firstly, Millennium Furniture purchased the foam products from Indochine Foamtech Co., Ltd ("Indochine Foamtech") and NS Millennium Viet Nam Company Limited ("NS Millennium"). Both suppliers determined that the foam products belonged to Appendix I attached to Decree 15 (Code No. 2013), which is not eligible for VAT reduction, and later issued VAT invoices with a 10% tax rate. Consequently, based on the above invoices, Millenium Furniture declared 10% VAT on the purchased foam products.
Secondly, Millennium Furniture Company had filed a complaint to the Quang Ngai Province Department of Taxation on the false refund with 10% VAT rate based on the official letter No. 9923/CTBDU-TTHT dated 05/04/2024 from the Binh Duong Province Department of Taxation for two suppliers to declare input VAT deduction. The guidance letter of the Binh Duong Provincial Department of Taxation (mentioned in the decision to resolve the complaint of Millennium Furniture Company) states that "if the product industry code according to the Prime Minister's Decision 43/2018/QD-TTg is 2013 in Appendix I of Decree 15/2022/ND-CP, the VAT rate of 10% will be applied". Based on this guidance, the two suppliers of foam products and Millennium Furniture Company assumed that the VAT rate on foam products is 10%, which is not subject to the application of the provisions of Decree 15. From this, it can be seen that the guidance letter of Binh Duong Province's Department of Taxation and the decision to resolve complaints of Quang Ngai Province's Department of Taxation have different approaches to the goods subject to the 8% tax rate under Decree 15. The incident raised a big question mark on the application of laws between localities to the same group of taxable goods and services, when the guidance in one locality cannot be applied in another locality, and as a result, taxpayers are the ones who get into trouble (not to be refunded a significant VAT amount of VND 2,316,876,804).
From the case study above, there are inconsistencies in the determination of goods subject to a reduced VAT rate under Decree 15 and Decree 44. Failure to determine the correct VAT rates would cause great inconvenience to businesses as they would have to adjust invoices to comply with the orders of the tax authorities.
2. Obstacles to tax refund due to incorrect declaration of VAT rates
Although it is undeniable that the VAT reduction policy has had a positive impact in recent years, many enterprises still face many difficulties in terms of implementation. As in the case of Millennium Furniture, the Quang Ngai Provincial Department of Taxation found that foam products were subject to 8% VAT under Decree 15. On the contrary, according to the guidance letter issued by the Binh Duong Provincial Department of Taxation, these goods are listed in Appendix I of Decree 15 with an applicable tax rate of 10%. The discrepancies affect not only the rights but also the tax obligations of Millennium Furniture, as analyzed below. 
Decree 15 provides an unclear solution to resolve errors in VAT reporting. In particular, Clause 1 Article 1 of Decree 15 stipulates that Millennium Furniture must prepare a protocol to record the errors. After that, the two suppliers of Millennium Furniture must issue invoices to adjust the output VAT and submit the adjusted invoices to Millennium Furniture. Based on the adjusted VAT invoice of the two suppliers, Millennium Furniture must declare the adjustment of input VAT. This regulation requires the implementation of tax administration procedures to ensure transparency and accuracy of tax declaration and adjustment for both buyers and sellers.
Previously, Circular 219/2013/TT-BTC was issued with different provisions from Decree 15 regarding the procedures for adjusting invoices with incorrect tax rates. According to the provisions of Article 12(b)(5) of the Circular, if the VAT rate indicated on the input invoice is higher than the statutory tax rate, the input VAT must be deducted according to the statutory tax rate. According to the provisions of the Circular, in spite of the 10% VAT invoice, the input VAT must be deducted according to the 8% VAT rates.
For companies, Millennium Furniture has purchased the foam products with VAT rates of 10% on the invoice. However, according to the decision of the Quang Ngai Province Department of Taxation, Millennium Furniture must adjust the invoice to the VAT rate of 8%. In addition, the company did not record the error and adjust the invoice according to Decree 15, resulting in the rejection of the tax refund amount of VND 2,316,876,804. This may be a typical situation that other enterprises may encounter when they declare the wrong tax rates for goods and services and fail to adjust the administrative procedures for taxes and accounting in a timely manner, resulting in the rejection of the tax refund. For certain goods, such as the foam product mentioned above, the inconsistency in determining tax rates confuses companies and tax authorities in complying with regulations. To avoid similar errors, companies should not only rely on the guidance of the authorities, but also pay attention to the applicable tax policies and promptly adjust financial documents when there are errors to ensure their rights.
Due to the inappropriate approach of the tax reduction policy: by relying on the business code, the situation is inevitable that enterprises apply the wrong tax rate for goods and services, which leads to errors in the adjustment of tax declaration dossiers. This error can become a factor that directly affects the rights and obligations of companies when implementing tax reduction policies. The case of Millennium Furniture Company is a good example of the complexity and confusion in the application of VAT reduction policy regulations. To minimize the shortcomings and create favorable conditions for businesses, the VAT reduction policy, which is expected to be implemented by the end of 2024, should consider establishing a tax rate of 8% for all groups of goods and services that are subject to 10% tax. This approach will avoid mistakes in the implementation process by companies or inconsistencies between the guidelines of the authorities and will promote the goal of reducing the financial burden on companies, instead of relying on the sector code as it is now.
Read more at: https://thesaigontimes.vn/doanh-nghiep-van-gap-kho-voi-chinh-sach-giam-thue-gia-tri-gia-tang/
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(1) https://chinhsachonline.chinhphu.vn/ap-dung-muc-thue-gtgt-8-hay-10-70261.htm, accessed 23 June 2024.
