To facilitate the value - added tax refund process

Value Added Tax (“VAT”) refunds are a significant aspect of business operations, particularly for import-export enterprises. However, numerous businesses continue to face challenges and obstacles in the refund process. It can be said that VAT refunds hold substantial significance for businesses, as the refunded amount can constitute a significant portion of a large company's cash flow.

What is a Value Added Tax (VAT) refund ?

A VAT refund refers to the process by which a government returns to taxpayer typicsally a business, an excess amount of VAT that has been paid. Specifically, this involves the government returning to a business the amount of VAT paid on purchases of goods and services that cannot be claimed as a tax credit or is not subject to VAT.

In practice, a significant number of businesses, especially those engaged in import and export, have substantial initial tax obligations and therefore have a keen interest in VAT refunds. However, the VAT refund process has been fraught with difficulties for numerous businesses over the years, with some business having to wait a year, two years or even longer to receive their refunds due to rejections of their VAT refund applications by tax authorities.

Challenges in Value Added Tax Refunds

Various factors contribute to the delays in processing VAT refunds for businesses. In reality, the delays can be attributed to the following primary causes:

Tax discrepancies

One of the common reasons why many businesses cannot complete the tax refund process is due to discrepancies between input VAT data recorded in the company's accounting books and the data declared on the VAT returns.

Specifically, the cause of this discrepancy may stem from differences in accounting records and tax declarations being reported in different periods. However, in practice, this does not affect the amount of tax refund requested or the eligibility for a refund. The temporary discrepancy between accounting records and monthly tax declarations is a common practice among businesses. During operations, companies regularly reconcile to ensure that throughout the accounting period, the tax amounts recorded in the accounting books and the VAT tax declaration are consistent, based on original documents. Nevertheless, this discrepancy is often the reason why many Tax Departments reject or delay processing tax refund claims. In these cases, the business’s tax refund application is usually not processed, leading to the refund not being granted as the company expected.

Concerns about counterfeit invoices and invoice trading

Due to the fact that many businesses use counterfeit invoices or purchase invoices from companies engaged in invoice trading, tax authorities have developed lists of companies at risk related to invoices. In cases where a business purchases goods or services from companies identified as high-risk for invoices, obtaining a VAT refund becomes challenging and complicated. Specifically, tax authorities are concerned that these businesses are not actually using the services or purchasing the goods in the initial stages but are instead using invoices issued by companies established solely for the purpose of issuing invoices. In some cases, after a business buys goods from a seller, the seller may face difficulties that lead to the cessation of their operations, which means the invoices issued by that seller will also be subject to thorough inspection. In many cases, out of the numerous input invoices a business submits, only a few are from companies at risk for tax issues, and the value of these invoices is very small compared to the total tax refund requested. However, the tax authorities still review all the invoices declared by the business. As a result, the business must provide explanations and submit supporting documents such as contracts, goods receipt notes, VAT invoices, bank payment records, etc., to prove the legitimacy of the transactions. This requirement applies to all invoices the business has declared.

Failure to declare the correct tax rate for purchased goods

One of the other reasons that tax authorities have recently given for rejecting VAT refunds for many businesses is the incorrect declaration of the tax rate on purchased goods, specifically regarding goods that are eligible for reduced VAT rates. Under the current VAT reduction policy of the government, if businesses fail to declare the reduced VAT rate for goods that are eligible for the reduction, this will create obstacles when processing VAT refund procedures.

Although the VAT reduction policy significantly supports businesses, there is still a lack of consensus between different tax authorities on the applicable tax rate for certain types of goods. A notable example is the case of Millennium Furniture Company Limited, based in Quang Ngai, which entered into contracts to purchase foam products from companies in Binh Duong. The Binh Duong companies issued VAT invoices with a 10% tax rate for the foam products, believing that these products were not within the scope of Decree No. 15/2022/ND-CP. However, when Millennium Furniture Company Limited submitted its VAT refund application, the Quang Ngai Tax Department determined that the foam products purchased by Millennium Furniture should be subject to an 8% tax rate, and the declaration of a 10% tax rate was deemed incorrect[1]. Notably, this issue stemmed from differing views between the two tax authorities on how to determine the appropriate tax rate for the goods, which unintentionally exposed companies like Millennium Furniture to risk. In this case, the VAT refund amount for Millennium Furniture was in the billions of VND.

Source: The Saigon Times

There needs to be a change from both the tax authorities and businesses.

It is clear that the issues mentioned above are significantly hindering businesses in obtaining timely VAT refunds. This not only affects the legitimate rights of businesses but also erodes their confidence in Vietnam's commitments to ensuring a transparent and stable investment and business environment. It can be imagined that some businesses have to wait for many years to resolve their VAT refund claims, without any results. Meanwhile, if VAT refunds were processed within the legal time frame, the refunded amount could be used by businesses to continue investing and operating, thus bringing significant benefits to the businesses. The fact that a business's resources are tied up in the VAT refund process is an issue that requires careful consideration. On the other hand, from the perspective of businesses, any delay in submitting declarations or paying taxes could result in administrative penalties. When comparing the obligation to pay taxes with the right to receive tax refunds, it is evident that businesses are bearing a certain level of unfair disadvantage.

To support businesses in carrying out the VAT refund process quickly and smoothly, changes need to come from both the businesses requesting the refund and the relevant authorities involved in processing VAT refund claims.

Regarding the competent authorities

Firstly, in cases where there is a discrepancy between accounting records and VAT declarations, tax authorities need to clearly identify the reasons for these discrepancies, based on the explanations provided by the business. This is because discrepancies in accounting data are inevitable, and in such cases, it is essential to consider the nature of these discrepancies. If a business provides reasonable explanations, the tax authorities should carefully review and take these explanations into account.

Secondly, regarding concerns that businesses may be using invoices from companies with a high risk of tax fraud, it is understandable that these concerns are valid in the current context. However, tax authorities should specifically classify which invoices pose a potential risk and require businesses to explain only those invoices, rather than forcing businesses to provide explanations for all declared invoices. Furthermore, when reviewing the explanations from businesses, tax authorities should also take into account cases where businesses are acting in good faith, meaning that the transactions between the business and the supplier are genuine. Businesses cannot control the activities of their suppliers, so tax authorities should focus on the individual transactions of the business rather than the general situation of the supplier.

Thirdly, regarding the tax rate for goods and services, it is unfair for businesses to bear the risk of delayed or denied tax refunds due to an incorrect determination of the tax rate. Tax authorities could easily coordinate internally to reach a consensus on how to determine the correct tax rate based on legal regulations. From there, an appropriate solution could be found if a business incorrectly determines the tax rate.

Regarding business

From the business's perspective, it is also important to pay attention to certain aspects to avoid encountering the above-mentioned issues. Specifically, businesses should review the consistency of the data between their accounting records and the tax declarations submitted to the tax authorities, minimize errors and discrepancies between these documents.

For goods purchase transactions, businesses should collect and maintain all necessary documentation to prove that the transaction is legitimate. Furthermore, before engaging in transactions, businesses should conduct due diligence on their partners and minimize dealings with companies that are considered high-risk for invoice fraud.

Finally, during the tax declaration process or other tax-related activities, businesses should consult with tax authorities, law firms, lawyer or tax specialists to obtain the most appropriate guidance at each stage. This will help avoid the risk of not receiving a tax refund or facing delays in the refund process, which can cause significant difficulties for the business operations.

Read more at: Để việc hoàn thuế GTGT được thuận lợi

Lawyer Nguyen Nhat Duong

HM&P Law Firm