Applying tax on animal feed ingredient faces problems due to specialized regulations

Many businesses declare palm oil as raw materials for animal feed production (not subject to VAT). Illustrative photo.

From refined palm oil...

According to Hai Phong Customs Department, some products such as palm oil, soybean oil, corn starch, sugar, whey, milk,... may be used for many purposes such as direct food for humans or used as raw oil for production of food, paint, plastic product and animal feed.

Currently, many enterprises import these items in large quantity and declare them as raw materials for animal feed production (not subject to VAT).

At the end of May and the beginning of June 2024, Quang Ninh Customs Department conducted post-clearance audits at the headquarters of C.L.F. Co., Ltd.

Through checking import documents, the item “Refined palm oil olein” imported by C.L.F Company Limited has the same seller, product name, origin, quality criteria and standards on Certifcate of analysis, unit price on the invoice for each consignment, and is transported in the same container.

However, C.L.F Company Limited declared to customs with two different using purposes: (1) use as food, subject to VAT rate of 8-10% depending on the time and (2) use as raw materials for animal feed production, and not subject to VAT.

The company declared the purpose of importing goods as raw materials for animal feed production in the List of animal feed eligible for import and issued the certificate of Animal feed regulation conformity.

However, the company did not directly produce animal feed but resold it to domestic customers, including purely businesses and animal feed producers.

When inspecting VAT invoices, Quang Ninh Customs Department detected that these invoices were all sold at a higher unit price than the import unit price and without VAT.

Quang Ninh Customs Department reported and asked for instructions from the General Department of Vietnam Customs. The department also voiced concern that whether the imported products of C.L.F Company Limited subject to VAT or not?

Earlier, through the reviewing, collecting and analyzing information related to the suspicion of VAT fraud when importing Refined Palm Oil and Refined Palm Oil Olein used as raw materials for animal feed production, Hai Phong Customs Department also reported.

According to Hai Phong Customs Department, the results of checking the records of a number of enterprises importing the products from 2019 to early 2024 showed that the importers were purely businesses and not directly producing animal feed.

The products of enterprises are diverse, including: raw materials for food production, animal feed, veterinary medicine, raw materials for paint production... so there is no basis to determine the final purpose of use of imported shipments as animal feed.

In some cases, import documents have the same seller, same product name, manufacturer's certificate (Certificate of analysis) showing the same quality criteria and standards, the same unit price on the invoice... but some enterprises declare that they use those products as raw materials for animal feed production without VAT; some enterprises declare those goods as food additives with 10% VAT, and some enterprises even declare those goods in different cases between previous shipment and following shipment.

All consignment declared as raw materials for animal feed production have been issued notification results of animal feed quality inspection.

... difficult to identify the real using purpose

In response to the problems of local customs units, the General Department of Vietnam Customs has sent an official dispatch to the Ministry of Agriculture and Rural Development on the application of VAT to imported animal feed and raw materials for animal feed.

The General Department of Vietnam Customs cites the provisions of Law No. 71/2014/QH13 amending and supplementing a number of articles of the Tax laws; Decree 12/2015/ND-CP; Circular 26/2015/TT-BTC; Law on Animal Husbandry and legal documents on VAT, as saying that the VAT on animal feed will follow the current Law on Animal husbandry.

The General Department of Vietnam Customs said that during the inspection for items declared as animal feed or raw materials for animal feed or goods used as food (such as palm oil, refined soybeans, etc.), the items are on the list of ingredients permitted for animal feed and get quality certification in accordance with Vietnam standards on animal feed.

Additionally, the General Department of Vietnam Customs received feedback from enterprises importing palm oil and refined soybeans to produce and trade cooking oil and products extracted from palm oil about the situation that enterprises imported vegetable oil and declared it as raw material for animal feed but they did not directly produce it and resell it to bottling facilities or food processing facilities, leading to unfair competition.

The General Department of Vietnam Customs proposed the Ministry of Agriculture and Rural Development to provide instruction that the imported goods declared as animal feed for livestock, poultry, aquatic products and other animals and published on the Electronic Information Portal of the Ministry of Agriculture and Rural Development, are not subject to VAT under the provisions of the Law on VAT.

The importers are not required to directly use animal feed. The importers are responsible for using the goods in accordance with the declaration.

The country’s top regulator asked Ministry of Agriculture and Rural Development to provide the issued and announced lists and websites for the Customs to look up and identify goods under the specialized laws to apply the VAT.

In the case of organizations and individuals importing goods that have not been announced or licensed under specialized laws, the Ministry of Agriculture and Rural Development needs to give instructions on the conditions and documents submitted at the import stage to have a basis to determine that they are animal feed for livestock, poultry, aquatic products and for other animals, and will not subject to VAT at the import stage.

In case it is necessary to have a confirmation document for each specific case, the Ministry of Agriculture and Rural Development will provide a focal point under the Ministry for the Customs authority, organizations and individuals to implement.

The General Department of Vietnam Customs, the current Law on Animal husbandry does not stipulate animal feed ingredients. Accordingly, in principle, applying tax policies, animal feed ingredients are not suitable to be identified as animal feed, poultry feed, aquatic feed and feed for other animals to apply the subjects not subject to VAT according to the provisions of the Law on tax.