Hanoi (VNS/VNA) - Firms are growing frustrated withthe excessive delays in tax refunds that have driven them into liquidityproblems for years.

The Board for Private Economic Development Research (Board IV)reported that many timber firms had been rendered cash-strapped as they had notreceived their tax refunds since 2020.

The board is worried that the situation could lead to massbankruptcies because the total delayed refunds had amounted to trillionsof VND. 

"Scores of firms would go bankrupt should the problems remainunsolved," said a spokesperson for Board IV.

Hao Hung Company Ltd., a timber exporter, revealed that taxrefunds require proof of origin (P/O). However, the firm sometimes findsit impossible to trace its timbers back to the tier-zero sellers (F0)as timber supply involves multiple tiers of sellers.

Without the F0-traceability, its timbers have not beeneligible for tax refunds, resulting in a large amount of its capitalremaining tied up in the State budget. 

The Vietnam Timber and Forest Product Association believedthat the tax authority's approach to traceability is problematic asit misplaces the P/O burden onto exporters. The association said itis the tiers of sellers who should bear the responsibility.

The approach also causes a regulatory conflict as theMinistry of Agriculture and Rural Development (MARD) has exempted lawfulforesters from registering their timbers with local authorities. Meanwhile,seller traceability requires such registration.

MARD sent Dispatch No.8187 to the Ministry of Finance lastyear to urge support for timber firms with tax difficulties butthe voice has gone unheard since then.

The P/O requirement also has a negative impact on the paperindustry as it discourages firms from recycling.

According to the Vietnam Pulp and Paper Association, firmsengaging in paper recycling normally find themselves unfit for value-added tax(VAT) refunds because their operation involves the purchase of wastepapers that, in most cases, are not traceable.

Companies have requested the General Department of Taxation torelieve them of the P/O burden. The tax authority has agreed to the request butlimited VAT refunds to no more than 100 million VND (4,265 USD) for eachfirm. 

The association believed that 100 million VND is such a smallamount that it could not act as a financial incentive forrecycling.  

The situation is not much better for fertiliser firms, which arenot entitled to VAT refunds because they have been granted VAT-exemptstatus since January 1, 2015.

Being exempted from VAT turned out to be more of a bane thana boon for the firms as they were left with no choice but to record theirotherwise VAT refunds as production costs. 

Higher production costs have driven upfertiliser prices by around 6.0%, substantially underminingtheir competitive advantages over foreign producers. Notably, Lam ThaoFertilisers and Chemicals JSC said it lost around 100 billion VND annuallyas a result of the VAT-free policy.

The Vietnam Fertiliser Association is urging the taxauthority to subject fertlisers to VAT to help domestic producers staycost-competitive.

Board IV is pressing for a new tax policy to lift firmsout of their liquidity problems.

Under the policy, well-operating firms with good track recordswould be granted tax refunds first and subject to a tax review later toverify the amount. Meanwhile, the reversal would apply to newly-founded firmsor those producing risky products./.