Improving VAT refund regulations: A must for development

Not just rubber enterprises, but also many other industries such as wood exports, cement, and cassava, suffer difficulties in VAT refund processes, putting these businesses at risk of bankruptcy and prompting them to seek assistance from anyone.

Taking these facts into account, Prime Minister Pham Minh Chinh issued Official Dispatch No. 470/CD-TTg on the afternoon of May 26th, requesting that the Ministry of Finance inspect, evaluate, and urge the General Department of Taxation to process VAT refund applications quickly, timely, and efficiently for the benefit of the people and businesses (to be completed by May 28th, 2023).

Following the Prime Minister's directive, the Ministry of Finance issued Official Letter No. 5427/BTC-VP, notifying the Minister's guiding opinions to the Director General of the General Department of Taxation and urging provincial and centrally-run city Tax Departments to "promptly resolve VAT refund applications in accordance with the relevant regulations and laws, direct units to provide guidance, and implement VAT refunds for qualified cases as stipends."

However, experts feel that, in addition to the Government's and the Ministry of Finance's firm pushing, it is required to reform VAT refund legislation in order to successfully tackle the current problems in VAT refunds.

According to Dr. Nguyen Ngoc Tu, a lecturer at Hanoi University of Business and Technology, the Ministry of Finance and the General Department of Taxation must address existing problems and alleviate concerns and unnecessary difficulties caused by tax officials in order to quickly resolve the obstacles in VAT refunds.

According to Dr. Tu, many nations conduct transactions through bank accounts, which makes VAT refunds more transparent and publicly available. Cash is still commonly utilized for payments in Vietnam, and VAT refunds are mostly based on invoices and paperwork. Controlling the process gets difficult when there is a significant amount of invoices. VAT refunds contribute for around 10-15% of overall budget income each year. With total budget income of over 1.5 quadrillion dong in recent years, the quantity of refund requests has reached around 150 trillion dong. This is a huge sum that will provide various issues to the tax system. Many examples of VAT refund fraud involving linked authorities have happened.

This exemplifies the flaws in the VAT return policy. Businesses acquire products worldwide due to their reliance on invoicing, and invoices are issued by multiple areas, making tax authorities' supervision difficult. Due to ineffective management, conforming firms face losses as a result of rigorous VAT return laws.

"Previously, the VAT refund process prioritized refunds over audits, with risky cases being audited first and refunds made later." However, several examples of VAT refund fraud have occurred, prompting tax authorities to issue broad directions making tax officers reluctant to sign the paperwork. They are afraid that if they sign and the refund application is shown to be fake, they may be imprisoned. Businesses, on the other hand, would suffer delayed tax returns if they do not sign," Dr. Tu explained.

As a result, the expert feels that legislation governing VAT refunds must be improved. It is also crucial to unify the VAT rate for domestic transactions in order to remove the necessity for domestic refund claims owing to differing tax rates, such as 5% or 10%. If this is accomplished, the quantity of domestic refund applications will reduce, allowing tax authorities to focus more on VAT refunds for export enterprises.

"The Ministry of Finance needs to provide specific guidance to resolve difficulties for businesses while ensuring that the budget is not compromised. The current approach, as outlined in recent directives, is impractical. We should not burden all other businesses because of a few cases of VAT refund fraud," expressed Dr. Tu.

According to Lawyer Tran Xoa of Minh Dang Quang Law Firm, the Value Added Tax (VAT) Law of 2008, the Tax Management Law of 2006, and subsequent modifications to date are all consistent when it comes to VAT refunds for enterprises.

"Since the passage of these two laws, businesses have been able to receive VAT refunds normally and without incident." However, in recent years, the tax sector has implemented various new rules, making it extremely difficult for many enterprises to go through the refund procedures," Mr. Xoa said.

The premise of tax administration, according to Mr. Xoa, is that each refund application is evaluated independently. Businesses have the opportunity to request refunds if the amount of tax paid exceeds 300 million dong. As a result, even if previously submitted papers are incomplete or require verification, just those documents will be delayed. Other papers given by the company should be accepted and handled in the same manner. Tax authorities cannot argue that if the previous case is still pending, the firm cannot file additional applications.

"As stipulated by law, VAT refund is a legitimate right and interest of taxpayers." Nobody has the authority to deprive taxpayers of their rights and benefits. State management institutions in general, and tax authorities in particular, are required by law to follow the rules. Following industry internal memoranda in the absence of such rules in the law causes barriers to economic activity. This puts enterprises in a bind, and if they face bankruptcy, it will have a negative impact on the slow development of the national economy and diminish government revenues, necessitating a rethinking of duties," said Mr. Xoa.