Value-added tax (VAT) fraud creates unfairness among businesses, distorts the business environment, and causes losses to the state budget. Currently, to strictly manage and minimize this situation, the Tax Authority has been and continues to focus on and strengthen inspections and controls.
1. Value-added tax fraud - inequality in the business environment.
Many individuals establish numerous fictitious businesses (using stolen identity cards, etc.) to illegally use invoices, thereby inflating the value of goods and falsely declaring input value-added tax to misappropriate VAT; signatures on transaction documents (economic contracts, invoices, etc.), even signatures registered at commercial banks and payment documents, are all forged.
Many businesses have taken advantage of the leniency of the law to engage in illegal invoice trading (invoices not linked to goods), employing various new tactics to circumvent tax authorities. Many individuals establish "ghost" businesses, employing poorly qualified individuals, or even those suffering from serious illnesses, to act as legal representatives. They then conduct circular invoice trading, selling these invoices to other businesses as supporting documents to legitimize input costs for tax deductions or refunds.
In particular, many individuals have temporarily suspended business operations, changed business locations, changed business names, moved operations to other localities, or even abandoned their business addresses without closing their tax registration numbers… In addition, not a few foreign-invested enterprises have engaged in tax fraud through transfer pricing, continuously declaring losses to avoid paying taxes, and have been inspected, discovered, and subsequently had their taxes recovered and refunded to the State budget.
Value-added tax (VAT) refunds are the return of tax amounts that businesses have advanced, as stipulated by tax laws. It can be seen that with the quick refund of VAT, many businesses can quickly rotate their capital, boosting production and business activities, especially in the current difficult context due to the negative impact of the Covid-19 pandemic.
However, in reality, there have been signs of businesses committing fraud regarding value-added tax (VAT) refunds and VAT deductions. Statistics show that businesses commonly use methods such as: inflating deductible input VAT and reducing payable output VAT; adjusting input and output VAT incorrectly; and misdetermining VAT rates for goods…
It is worth noting that FDI (Foreign Direct Investment) enterprises often commit fraud in declaring input costs by inflating values, showing signs of violating transfer pricing regulations. Alternatively, there are cases where subsidiaries of parent companies abroad impose very high management fees on their subsidiaries, leading many FDI companies to declare losses in order to avoid paying taxes to the Vietnamese government.
2. Strengthen VAT tax inspections and audits.
In recent times, to promptly prevent the aforementioned violations, the General Department of Taxation has implemented many effective solutions, such as requiring provincial and city tax departments to seriously review businesses trading in high-risk goods.
In particular, when conducting inspections and audits of value-added tax refunds, the tax authorities strictly follow the prescribed procedures, compare actual records and the nature of transactions with tax laws and regulations to promptly detect and prevent violations.
In addition, after the conclusion of post-refund inspections and audits, the tax departments of provinces and cities will intensify their efforts to urge the recovery of VAT refunds and handle tax violations according to regulations.
To manage and closely monitor the situation in order to minimize and prevent it, the Tax Authority continues to focus on and strengthen inspections and audits. This includes, in particular, companies that declare losses but still expand production, open more branches and sales locations, expand production facilities, and hire more workers.
The tax authorities continue to accelerate the application of information technology in tax administration. Currently, the entire tax system is connected, and some businesses have already established information connections with the tax and customs authorities. The tax administration is strengthening and expanding connectivity to other entities, aiming to create a nationwide tax database. In particular, the implementation and effectiveness of the roadmap for expanding the application of electronic invoices under the Law on Tax Administration No. 38/2019/QH14 and Decree 123/2020/ND-CP aims to enhance transparency in business transaction information, contributing to reducing the buying and selling of invoices.
3. What should businesses do to manage value-added tax?
To avoid being subject to retroactive collection of value-added tax and incurring penalties from tax authority inspections, businesses need to take note of the following.
- Comply with tax management regulations and stay updated on relevant documents, as well as understand the tax authority's management and monitoring plans.
- Ensuring transparency of management information on the financial accounting system and implementing the Tax Authority's regulations on information innovation in tax management;
- Value-added tax records must be fully maintained and accurately reflected to reflect the actual nature of transactions and compare them with tax laws and regulations in order to make timely adjustments in accordance with current regulations.
- Conduct a thorough review of the company's input invoices, ensuring compliance with regulations regarding tax rates, invoice issuance, and invoice content, etc.
- Maintain complete records related to output VAT, especially records related to exports if VAT refunds are being processed;
If your company has any issues requiring support or advice, please contact our Consulting Department immediately for prompt assistance.