VASEP recommends maintaining a 0% tax rate for export services

DNHN - According to VASEP’s analysis, for processing enterprises, the entire amount of tax payable will be included in the cost. This leads to a significant increase in the cost of exported products.

The Vietnam Association of Seafood Processors and Exporters (VASEP) has just sent Official Letter No. 31/CV-VASEP to the following ministries and agencies: Finance, Justice, Planning and Investment; the Advisory Council for Administrative Procedure Reform and the General Department of Taxation to provide feedback on the draft Law on Value Added Tax (VAT) Amendment and the draft Decree guiding the implementation of the VAT Amendment Law.

VASEP raised the issue in Clause 1, Article 9 of the draft VAT Amendment Law, that all export services will be subject to a 10% VAT except for some services specified in this clause.

This regulation is unreasonable because according to international practice, other countries apply a 0% tax rate to export services and allow businesses to refund input tax.

At the same time, these countries often apply the principle of self-declaration, self-responsibility, and tax authorities inspect, check, detect and handle violations.

In addition, when applying VAT to export services, domestic production enterprises are still deductible. Even the refund procedure will be simpler because it is deductible for export services.

However, processing enterprises that are not subject to tax declarations do not have a refund mechanism.

Thus, the application of tax to export services creates inequality between processing enterprises and domestic production enterprises because both are enterprises producing export products, but one side is entitled to deduct tax on export services, while the other is not. In addition, when applied to processing enterprises, it is contrary to the principle of taxation and the subject of taxation.

According to VASEP’s analysis, for processing enterprises, the entire amount of tax payable will be included in the cost. This leads to a significant increase in the cost of exported products.

Unfavourable tax policies will make processing enterprises in Vietnam less competitive than their rivals in other countries, reduce export turnover, and thus fail to retain current investors and attract new investors.

Moreover, Vietnam is a country with an export-oriented economy. Since the Doi Moi period, the export of goods has always been an important growth driver of the country, with an average growth rate of nearly 15% per year.

This result is partly due to the simplification of customs procedures for processing enterprises by considering processing enterprises as non-tariff zones, helping enterprises reduce customs procedures and processes, and enabling enterprises to quickly import and export goods and services in large volumes.

The application of VAT to export services not only reduces the competitiveness of export products of processing enterprises but also creates more tax procedures for enterprises.

This runs counter to the Government’s policies of encouraging investment, encouraging exports and enhancing national competitiveness.

In the official letter, VASEP also pointed out the inadequacy in the field of service exports, the current VAT Law allows for a 0% tax rate. However, in reality, many businesses are still often subject to a 10% tax rate because tax officials cannot distinguish between domestic consumption services and export services.

Also stemming from this difficulty in implementation, this draft has proposed no longer allowing export services to enjoy a 0% tax rate, instead imposing a 10% tax.

In the past, to ensure separate accounting between revenue from domestic users and foreign users, businesses had to split products into two versions to supply two different markets. However, this solution has caused many problems and increased the operating and product supply costs of businesses.

In light of the above inadequacies, VASEP proposes to maintain the current regulation on tax for export services to enjoy a 0% tax rate. At the same time, it recommends that the Ministry of Finance guide the method of classifying export services and domestic consumption services.

In addition to the issue of VAT on export services, VASEP also mentioned the inequality in VAT when organising production and business according to the economic group model, specifically for an enterprise that performs both stages, having both a facility to produce raw materials for the processing plant and a processing plant, will be entitled to deduct input VAT.

For this type of enterprise, when switching to the form of an economic group, this enterprise is divided into a company specialising in producing raw materials and a company specialising in processing finished products for consumption.

At this time, the first company is not entitled to deduct input VAT because the output product is not subject to tax. The second company has input materials that are not subject to tax, so it is not deductible when paying output tax. As a result, when switching to the economic group model, the enterprise has to pay more taxes, reducing the motivation for enterprises to organise according to the economic group model.

“This result cannot fail to mention the role of simplifying customs procedures for processing enterprises by considering processing enterprises as non-tariff zones, helping enterprises reduce customs procedures and processes, and enabling enterprises to quickly import and export goods and services in large volumes. This is a superior, competitive and very good mechanism of the Vietnamese Government in attracting investment compared to other countries. Therefore, the application of VAT to export services not only reduces the competitiveness of export products of processing enterprises but also creates more tax procedures for processing enterprises. This also runs counter to the Government’s policies of encouraging investment, encouraging exports and enhancing national competitiveness,” VASEP stated.

In light of the above inadequacies, VASEP proposes to maintain the current regulation on tax for export services to enjoy a 0% tax rate. At the same time, the Ministry of Finance is assigned to provide guidance on the method of classifying export services and domestic consumption services.

P.V