Accurate assessments in need to deal with tax refund delays in the coal wood business

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illustration image. Photo: Nguyen Thanh
illustration image. Photo: Nguyen Thanh

Obstacles from the origin verification process

Exporting enterprises using plantation timber, especially woodchips, peeler/plywood, and pellets, are undergoing many difficulties.

Mr Thang Van Thong, Deputy General Director of Hao Hung Group, shared that since the end of September, the export volume of woodchips has slowed down, and the price has declined. As a result, the price of woodchips is expected to decrease more. However, businesses still have to spend on input materials and others expenses such as workers’ salaries, bank interest, and goods costs while a part of the capital is in the process of VAT refund.

As reflected by businesses, the congestion in VAT refund is due to the guidance of the General Department of Taxation in Official Letter No. 429/TCT TTKT, Official Letter No. 2124/TCT-TTKT, Official Letter No. 2928/TCT- TTKT and Official Letter No. 4569/TCT-TTKT. According to these documents, timber and wood products made from domestically planted forest wood are items with high tax risk, and it required local tax departments to strengthen inspection, supervision, and coordination with police, customs, local authorities in verifying the origin of timber.

Mr Do Xuan Lap, Chairman of the Vietnam Timber and Forest Products Association (Viforest), said that the tax refund problem lies in confirming the product’s origin. Regulations require certification for forest owners, but this is an impossible mission due to various sources of input materials.

Currently, 80% of raw materials used in the wood industry are wood from planted forests, scattered trees, and liquidated rubber in the country, of which 60% is forest timber from hundreds of thousands of households and individuals. However, because the volume of exploitation is small, fragmented, and all located in remote and isolated areas, most export wood processing enterprises cannot buy raw materials directly from forest growers/households but have to acquire from trading companies. These trading companies buy input materials from many different units, maybe other commercial units, people, or small production facilities, to collect enough wood to supply wood processing enterprises.

Therefore, businesses believe that verifying the origin will take much time, while the principle of the business is to have a purchase and sale contract with total warehouse receipts, and when exporting, the customs authority s are the last to control the origin, so businesses are “real and genuine”.

In a recent report to the Prime Minister on the biggest challenges facing businesses in the last months of 2022 and early 2023, the Research and Development Board of the Private Economy (Board IV), under the Advisory Council for Reform administrative procedures, also mentioned this difficulty. According to Board IV, the issue of VAT refunds for export products of the wood industry is facing many obstacles due to the origin verification process, which creates challenges for businesses because they face cash flow difficulties.

We need to carefully evaluate and share

In dealing with these problems, a recent dispatch sent to the Ministry of Finance of the Ministry of Agriculture and Rural Development proposed to remove difficulties in confirming the origin of planted forest timber in VAT refund; at the same time, it is recommended that the tax authority should have more thorough assessments in classifying and applying risks to wood products, especially for reputable processing and exporting enterprises.

According to the latest report of the General Department of Taxation, in the first 9 months of 2022, tax authorities nationwide have processed VAT refunds for 2,998 cases subjected to pre-refund inspection; cases that are not eligible for a refund through examination of documents are 1,870 billion VND, accounting for 1.7% of the total tax requested for the refund. Regarding inspection, post-refund inspection, the Tax sector has carried out 4,646 cases with a total of 414.39 billion dongs of tax refund and penalty.

Given this issue, Assoc. Prof. Dr. Le Xuan Truong, Dean of the Faculty of Taxation and Customs (Academy of Finance), commented, for many years, in the field of exporting agricultural, forestry and mechanical products, Tax authorities and law enforcement agencies have detected and handled many businesses that cheat on VAT refunds. The VAT refund for wood businesses is classified as a high-risk group, so it is necessary to consider specific conditions to see if there is a phenomenon of harassment or if this is an indispensable profession of tax authorities to prevent tax refund fraud, thereby making a proper assessment of the delay in processing VAT refund dossiers as reflected by businesses.

Previously, answering businesses about VAT refunds at the Dialogue Conference on tax and customs policies and procedures 2022 on November 22, 2022, Deputy Minister of Finance Cao Anh Tuan said raw materials are mainly from different sources under many processing stages, which hinder them in the VAT refund process.

Deputy Minister Cao Anh Tuan shared that agencies and businesses must comply with the law’s provisions. But, more importantly, enterprises must evaluate and judge accurately to proactively deal with the situation and comply strictly with the policy of the State. Therefore, Deputy Minister of Finance Cao Anh Tuan wishes that businesses share with the management agency about the implementation of the provisions of the law.

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