Regulating value-added tax refund for investment projects in exploiting natural resources and minerals

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According to current regulations, if investment projects on the exploitation of natural resources and minerals are licensed from July 1, 2016 or investment projects on goods production with a total value of natural resources and minerals plus costs of energy accounting for 51% or more of the product cost under the investment project, the value-added tax (VAT) will not be refunded, but the tax amount that has not yet been deducted from the investment project will be transferred in accordance with the law on investment to the next period.

To encourage oil and gas field exploration and development, in Clause 2, Article 10 of Decree No. 209/2013/ND-CP (amended and supplemented in Clause 6, Article 1 of Decree No. 100/2016/ND-CP), new business establishments from investment projects that have registered their business and registered to pay VAT by the deduction method will be entitled to a refund of VAT on goods and services used for investment each year. If the accumulated VAT amount of goods and services that is purchased and used for investment, is VND300 million or more, VAT will be refunded.

However, these regulations are currently facing many problems. Specifically, according to the Ministry of Finance, Decree No. 209/2013/ND-CP clearly stipulates that "projects for exploration and development of oil and gas fields are in the investment stage, not put into operation yet, and are eligible for VAT refund and only stipulates the non-refundable exclusion of tax for the project ‘exploiting natural resources and minerals’”.

Based on the Law on Petroleum and guidance documents, activities of prospecting, exploration, field development and oil and gas exploitation activities are different. During oil and gas prospection, if there is no commercial discovery (oil or gas discovery), the oil and gas contract will be terminated. In case of commercial discovery, the mining phase will be changed.

"The regulation of VAT refund for oil and gas field prospecting, exploration and development projects that are in the investment stage and have not been put into operation has not changed and been transparent. However, it still has a different way for understanding the oil and gas field prospecting, exploration, and development projects that are not entitled to VAT refund because they are excluded from VAT refund for natural resources and mineral exploitation projects licensed from the 1st of May and July 2016," the Ministry of Finance said.

Therefore, in order to make the regulations more clearly and avoid different interpretations, in the draft Decree detailing a number of articles of the Law on Value-Added Tax, the Ministry of Finance submits to the Government the provisions in point c, clause 2, Article 10 of the draft Decree are as follows: Business establishments are not entitled to a VAT refund but are entitled to carry over the un-deductible tax amount of an investment project following the investment law to the next period in the following cases:

Investment projects on the exploitation of natural resources and minerals licensed from July 1, 2016, or investment projects on production of goods and services for which the total value of natural resources and minerals plus energy costs accounts for at least 51% of product cost or more under the investment projects, excluding oil field prospecting, exploration and development projects.