The more you work, the more capital gets "tied up".

Internal documents override the law?

After sending six official letters of appeal to the leaders of the Ho Chi Minh City People's Committee, the General Department of Taxation, the Ho Chi Minh City Tax Department, and the Minister of Finance, along with two letters requesting a meeting with the leaders of the Ho Chi Minh City Tax Department within a year, a representative of Leglor Production-Trading-Service Co., Ltd. (Thu Duc City, Ho Chi Minh City) shared with Thanh Nien newspaper on May 24th that they had only met with the Deputy Director of the Ho Chi Minh City Tax Department on May 18th. After discussions with the company and relevant departments, Mr. Thai Minh Giao, Deputy Director of the Ho Chi Minh City Tax Department, instructed the Thu Duc City Tax Sub-Department to submit a proposal for a value-added tax (VAT) refund for Leglor Company to the Ho Chi Minh City Tax Department and would sign it immediately. Although they are still awaiting the refund decision, reaching this point is considered a welcome result after a long period of appeals.

Many timber businesses are having their VAT refund applications "held up" due to regulations requiring verification of timber origin all the way back to the forest owner.

Specifically, Leglor Company's tax refund application was first submitted in July 2021, but due to the COVID-19 lockdown in Ho Chi Minh City, the application had to be revised at the end of 2021 because the District 9 Tax Office was awaiting merger into the Thu Duc City Tax Office. In early 2022, the Thu Duc City Tax Office issued a report documenting the inspection results and confirming that the company's tax refund application met the eligibility criteria.

Based on that, the Thu Duc City Tax Department submitted a VAT refund proposal for the company to the Ho Chi Minh City Tax Department twice, but for some reason, the case was not resolved. Ironically, while the VAT refund application for 10.5 billion VND was still pending, the tax authorities also refused to accept applications for subsequent rounds, so the company continued to wait and its capital was tied up.

It is estimated that the VAT paid over nearly two years that needs to be refunded amounts to almost 30 billion VND, a very large sum for a private company, especially in the context of recent years. Even more tragically, according to Mr. Le Tan Phu, representative of Leglor Production-Trading-Service Co., Ltd., even with orders, the company cannot proceed with production and export due to a lack of capital. This situation pushes many companies closer to bankruptcy as the amount of VAT refunded remains "locked up."

Months ago, we thought this issue was resolved, and businesses had high hopes, so they tried to maintain operations instead of temporarily suspending or closing down. However, things are getting increasingly bleak!

Ms. HTN (Director of a wood manufacturing company based in District 1, Ho Chi Minh City)

"The reason for the tax refund is that the tax authorities require verification of the wood's origin all the way back to the forest owner (F0) before the refund application can be processed. However, this verification is very difficult, even impossible, because the wood from domestic plantations is very small-scale and scattered, purchased through many intermediaries. While we are a company specializing in directly exporting outdoor furniture made from acacia wood (sourced from domestic plantations) and purchasing finished products from partners, we cannot know which units the manufacturers source their raw materials from," this person said, adding that the company has complete export contracts, customs clearance confirmation documents, and all payments are made through banks with complete and legally compliant payment documents, but they could not overcome the internal document from the tax authorities requesting verification of the wood's origin.

"We're on the verge of collapse, facing imminent bankruptcy because our VAT refunds are being withheld, we lack working capital, and we're heavily indebted to banks. Our company doesn't know where to get the money to maintain operations, pay interest, and especially the principal debt that's due soon. We don't know what will happen to the hundreds of workers currently employed at our company if it dissolves. We're still anxiously awaiting the decision on our VAT refund after a recent meeting with the Ho Chi Minh City Tax Department," Mr. Phu said.

With nearly 3 trillion VND "locked up," the timber industry is appealing for help.

Having operated for over 20 years, Ms. HTN, director of a wood manufacturing company based in District 1 (Ho Chi Minh City), laments that she has never faced such difficulties as she does now, due to the ever-increasing amount of tax refunds being withheld, reaching approximately 7 billion VND. A year ago, the company filed an application for a 2.5 billion VND VAT refund, but it has yet to be processed. Subsequent refund applications have been stalled, causing the total amount of tax refunds to grow, reaching around 7 billion VND. The tax authorities have verified over 60% of input invoices, yet refunds are still not being processed, simply because of the requirement to verify the origin of the wood. The company mainly purchases raw materials from companies, a large proportion of which are state-owned, and the verification process remains lengthy.

"Verifying the shipment or port is the responsibility of the tax authorities; how can businesses do that? I heard tax officials say they've sent the company's information abroad to verify the buyer's identity, and now we're waiting for the results. If the foreign party doesn't respond, does that mean the company won't get a tax refund? The tax authorities can check foreign businesses through other channels like tax identification numbers… they can't just withhold money like this," Ms. N. said angrily, adding that her company is in a predicament where trying to secure export contracts without a tax refund only leads to more tax arrears.

"Months ago, we thought this problem would be resolved, and the company had high hopes, so we tried to maintain operations instead of temporarily suspending or closing down. But things are getting increasingly bleak! From a company that at its peak had 300 workers, now it only has a few dozen. The company is barely surviving, finishing up signed orders before temporarily suspending operations. We're completely exhausted of capital. We're not even making 10% profit, and we're thinking about borrowing from the bank for operating capital – that's a recipe for disaster," Ms. N. stated frankly.

Viewing the timber industry as high-risk and implementing inspections and audits will create difficulties for businesses because it takes a lot of time to verify the origin of the timber. With trillions of dong still unpaid, many businesses face the inevitable possibility of bankruptcy due to a lack of operating capital.

Mr. Le Minh Thien (Vice President of the Vietnam Wood and Forest Products Association)

According to Le Minh Thien, Vice Chairman of the Vietnam Wood and Forest Products Association (VIFOREST), the amount of tax refunds that wood businesses nationwide have been held up for many years amounts to approximately 2,500 - 3,000 billion VND. In particular, for businesses that purchase wood chips, there is almost "no way to resolve the issue." The requirement to verify the inventory of planted forest products between the exporting unit and each individual forest grower is impractical. Individuals may have only a few hectares of land for planting trees, or plant trees in a mixed manner until they sell them to the purchasing businesses. Requiring exporting businesses to directly verify each individual forest grower is impossible. It's impossible to obtain the inventory, nor to know who signed the confirmation. The Ministry of Agriculture and Rural Development has also intervened to help businesses resolve the issue, but it remains unresolved.

Previously, in 2020, the General Department of Taxation issued Official Letters 2928 and 2424, requesting the Tax Departments of provinces and centrally-administered cities to strengthen measures to prevent, detect, and handle violations of VAT refund laws; and to review taxpayers at risk of VAT refunds. This included tightening management of VAT refunds for businesses trading in high-risk goods such as wood and wood products. Since then, according to Mr. Le Minh Thien, many wood businesses have found it difficult to receive VAT refunds.

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