Invoices are rejected when the business partner ceases operations.
Ms. Thanh Nhan (an accountant at an electronics component supplier in Ho Chi Minh City) is worried about whether her company's tax refund application will be processed quickly by the tax authorities because the business is already severely underfunded. The company's current capital is only 2 billion VND, but over 1 billion VND of the tax refund remains unresolved. Even if they wanted to borrow money from the bank for business operations at this time, the company's financial situation wouldn't allow it.
Ms. Thanh Nhan explained that her company sells electronic components to businesses in the export processing zone with a 0% tax rate. According to regulations, the company is entitled to a 10% VAT refund. Previously, the company processed tax refunds twice a year using the "refund first, audit later" method, making the process very quick. However, in recent years, the tax authorities have implemented an "audit first, refund later" method, meaning that invoice verification is required not only for businesses selling directly to other businesses but also for invoices from F2, F3, and other related businesses.
Verifying these invoices is not quick; some tax authorities respond, while others do not. Many invoices from businesses that temporarily ceased operations due to difficult business conditions in March 2023 (after the invoices were issued to Ms. Thanh Nhan's company) were also rejected and not recognized by the tax authorities.
"The tax amount on these invoices is tens of millions of dong, so the company has no choice but to accept it. However, the real issue is that because these invoices are from businesses that have temporarily ceased operations, the entire tax refund request of 1 billion dong for the company has not been processed," Ms. Nhan said angrily.
Businesses are worried about receiving invoices from companies that have ceased operations.
A representative of a plastics export company in Ho Chi Minh City (who wished to remain anonymous) stated that the issue of not receiving VAT refunds is quite common in Ho Chi Minh City. His company conducts transactions with many businesses and partners in various provinces and cities. This is quite normal, but because of this, his company's VAT refund application for 2022 was stalled because the tax authorities required verification of a declared transaction with a unit in the Mekong Delta region from the third quarter of 2019. By the time the tax authorities verified the transaction in 2022, this unit had temporarily ceased operations.
At the same time, when the local tax authority where the goods were sold was asked to verify the information, they discovered that the local business had failed to declare sales invoices and had not paid taxes. This person expressed frustration, stating that the business always had contracts with the seller according to its business license, made payments through the bank, and had financial invoices with full VAT declarations. Therefore, violations by the local partner, or temporary suspension of operations, were beyond the business's control.
Especially since the transaction took place three years prior to the tax authorities' audit, it would be unfair for the tax authorities to hold businesses like yours responsible for this risk. This is not to mention the situation after the Covid-19 pandemic, where many businesses are facing difficulties and have requested temporary suspensions. Should every business with sales contracts and invoices with partners in this situation be held liable? The tax authorities have complete records that can be examined from the time the company made the transaction several years prior, and the partner was still operating normally.
The miserable wait for inspection by foreign buyers.
In 2022, the Vietnam Cassava Association and its member businesses repeatedly petitioned and sent official letters to the General Department of Taxation, the Ministry of Finance , and the Prime Minister regarding the issue of not receiving VAT refunds for cassava starch. According to the association, many businesses have yet to receive refunds because tax authorities in different localities have different interpretations. The problem for cassava businesses stems from the General Department of Taxation's issuance of Official Letter No. 632 dated March 7, 2022, concerning VAT refunds for cassava starch. This letter instructed tax authorities to internally manage refund procedures, including requiring tax departments to inspect, review, and cross-check businesses in their areas that declared transactions with businesses and organizations from China, leading to the suspension of VAT refunds for cassava exporting businesses.
Accountant at an electronics component supplier company in Ho Chi Minh City.
According to the Vietnam Cassava Association, the documents required for VAT refund on agricultural exports only include a refund request form; a sales or processing contract; a customs declaration; and bank payment documents. Current VAT refund regulations do not require confirmation from the foreign customer to be eligible. Furthermore, exporting businesses have neither the obligation nor the capacity to verify foreign partners when signing contracts. Verifying the legal status of the buyer in the importing country is beyond the capabilities of businesses. Therefore, businesses cannot verify whether that partner still exists. Meanwhile, China is a major export market for Vietnamese cassava, accounting for 93%. This means that most businesses in this sector are already facing, or are currently facing, the risk of having their tax payments withheld.
Recently, many cases of VAT refund fraud have been uncovered. The specific industry involved in these fraud cases is likely to see stricter controls imposed on businesses in that sector. For example, in 2021, some businesses with imported goods (electronic components, computers) with similar designs and technical specifications declared very low import values, while others declared much higher export values. Or, each export shipment might weigh only a few kilograms to a few tens of kilograms, but the declared value could reach billions or tens of billions of VND. This creates a potential risk of invoice trading and inflated VAT figures domestically to artificially inflate the value of exported goods and fraudulently obtain VAT refunds.
Therefore, the General Department of Taxation has issued a document requesting local tax authorities to review businesses trading in high-risk goods such as electronic components, wood and wood products, agricultural, forestry, and aquatic products... to conduct inspections and audits according to guidelines. When inspecting and auditing VAT refunds, it is necessary to compare actual records, the nature of transactions, and the provisions of tax law...
The situation of a few bad apples spoiling the bunch is causing many businesses to suffer the consequences, with thousands of billions of dong in VAT taxes being withheld, and it's unclear when they will be refunded.
The cassava industry is facing numerous difficulties due to the impact of the Covid-19 pandemic over the past two years. Large inventories, many businesses lacking funds to purchase raw materials, and the forced suspension of production are all contributing factors. If the VAT refund issue is not resolved promptly, it could lead to the collapse of the entire production chain, affecting this billion-dollar crop and impacting other industries with similar cross-border exports as cassava.
Vietnam Cassava Association
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