FIEs keen for VAT refund expedition

FIEs keen for VAT refund expedition

Many foreign-invested enterprises are waiting for the state management agencies to expedite VAT refund procedures to provide additional capital for resuming production activities.

Vina Kyoei Steel Co., Ltd., a joint venture with 60 per cent Japanese investment and 40 per cent from Vietnam Steel Corporation – is awaiting a response from the Ministry of Finance (MoF) and its Tax Department to review and address issues related to the company’s VAT refund case. “The company has submitted all necessary legal documents to prove the authenticity and legitimacy of its transactions with suppliers. However, suppose a supplier later ceases operations at its registered address. In that case, Vina Kyoei is waiting for confirmation that it remains eligible for VAT refunds for valid transactions previously conducted,” noted a document that a representative of the Vietnam Association of Foreign-Invested Enterprises (VAFIE) shared at a workshop in Hanoi in mid-July.

Before submitting its petition to the MoF and its Tax Department, the company filed a request with former Ba Ria-Vung Tau Tax Department, now part of Ho Chi Minh City.

Vina Kyoei Steel, which operates in iron and steel production, submitted a VAT refund application for input VAT related to export activities from December 2021 to November 2022 to the Tax Department in January 2023.

The department began a pre-refunded VAT inspection in February 2023. Almost two years after submitting the refund application, last November, the inspection team concluded that Vina Kyoei was ineligible for a VAT refund of $3.5 million.

The reasons cited were that the company used invoices from taxpayers who were no longer operating at their registered business addresses and those flagged as high-risk for tax purposes. The inspection team based its decision on the company’s purchases from eight suppliers classified as high-risk for tax and invoice issues, despite Vina Kyoei providing comprehensive documentation proving that the transactions were genuine and had taken place.

“The classification of high-risk enterprises is an internal tax authority management process and is not publicly disclosed. At the time of the transactions, Vina Kyoei verified the suppliers’ information but received no official notice from the tax authorities or other agencies indicating that these suppliers had ceased operations or that their invoices were invalid,” the representative of VAFIE said.

“The notices used by the inspection team to assess supplier risk were issued after the refund period requested by the company. The tax and invoice risk status of these suppliers on the tax authority’s internal system at the time of inspection cannot be used to negate the legality of transactions conducted earlier by Vina Kyoei,” the representative added.

Last December, Vina Kyoei filed a complaint against the refund denial notice, which was rejected. Thus, the company decided to submit a second complaint to the Tax Department for further review. This issue significantly affects the company’s ability to sustain operations in Vietnam, Vina Kyoei said. It expects to receive the Tax Department’s clarification to safeguard the company’s legitimate rights, enabling it to continue production confidently and contribute to the country’s economic growth.

In another case, Young Poong Electronics Vietnam Co., Ltd. overpaid input VAT to two suppliers in the northern province of Bac Ninh, as these suppliers issued VAT invoices with a 10 per cent tax rate instead of sales invoices for processing activities, as previously guided by the tax authorities.

Last December, the Tax Department issued guidance on adjusting invoices, supplementing VAT declarations, and processing refunds for overpaid taxes. Although the company and its suppliers adjusted the invoices and declarations, more than six months after the guidance was issued, the company has yet to receive the refund. Bac Ninh Tax Department is still coordinating with Bac Ninh People’s Committee to arrange for the refund budget allocation. “The prolonged refund process caused our company a shortage of financial capital, hindering business operations and planned production expansion. We urge the MoF to prompt the Tax Office of Region V, managed by Bac Ninh People’s Committee, to swiftly coordinate to secure refund funds for our suppliers, enabling us to receive the refunds,” the company noted in the document submitted to VAFIE.

The cases of these two enterprises highlight delays in VAT refund procedures in some localities, causing inconvenience to businesses. This problem has also been highlighted at several major gatherings, such as the Vietnam Business Forum. Accelerating the refund process not only provides investors with capital for reinvestment but also boosts their confidence in the investment environment, encouraging long-term commitment, insiders said.

“VAT refunds directly impact a company’s cash flow, making predictability the most critical factor. Ideally, refunds should be processed within three months from the date of incurrence, or at the latest, within six months. However, this requires clear policy and implementation,” Ko Tae Yeon, chairman of the Korea Chamber of Business in Vietnam, told VIR.

“For cases involving VAT refund disputes, active intervention by central authorities is crucial. I propose establishing a VAT refund consultation centre under the central government to directly assist businesses,” Yeon added.

To resolve the concern of business and the investor community, the Tax Department in April issued a document urging regional tax branches to speed up the settlement of VAT refunds. The department directed them to review all outstanding VAT refund requests based on classifying item groups, especially textiles, footwear, wood and wood products, agricultural products, seafood, iron and steel, and electronic components.

The department also asked them to clearly identify difficulties and create deadlines to solve them. Besides that, it is necessary to arrange sufficient personnel, assign specific tasks, and organise weekly monitoring and inspection of implementation progress.

VIR