VCN – Facing problems in the calculation of Value Added Tax (VAT) on imported industrial sewing machines subject to import tax exemption but subject to VAT, but are repurposed and sold domestically, some enterprises raised questions on VAT calculation and deduction on repurposed goods, guided by the General Department of Customs.
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On tax policy
According to the General Department of Customs, under the VAT Law No. 13/2008 / QH12, machinery, equipment and supplies and construction materials, which cannot be domestically manufactured and need to be imported for direct use in technological lines for the formation of enterprise’s fixed assets, are subject to 10 percent VAT except for goods described in Clause 17, Article 5 of this law, which is amended and supplemented in Clause 1, Article 1 of Law No. 31/2013 / QH13 amending and supplementing some articles of the VAT Law.
In addition, Clause 12 Article 1 of Government Decree No. 59/2018 / ND-CP dated April 20, 2018 amending and supplementing Clause 5 Article 25 of Government Decree No. 08/2015 / ND-CP dated January 21, 2015 stipulates that if imported and exported goods are not subject to import and export taxes, excise tax, value-added tax, environmental tax, or are exempt from taxes or are subject to tax rate and flat-rate tax according to the tariff quota, have been released or cleared but then are subject to changes in entities that are not required to pay taxes or in purposes for which exports or imports are exempted from paying taxes; exports or imports are taxed at a rate that conforms to the tariff quota; imports are raw materials, supplies and components used for export processing or manufacturing or goods temporarily imported for re-export that have been released or cleared under customs procedures but then are repurposed and sold domestically, so new customs declarations must be submitted instead.
Policies on the management of imported and exported goods and tax policies on imported and exported goods shall be implemented when new customs declarations are registered, except when all policies on management of imported and exported have been fully implemented when the initial customs declarations are registered
According to Clause 10, Article 1 of Circular No. 39/2018 / TT-BTC dated April 20, 2018 of the Ministry of Finance amending and supplementing Clause 1 Article 21 of Circular No. 38/2015 / TT-BTC of March 25, 2015 of the Ministry of Finance on the declaration of repurposing and domestic consumption: "imports and exports are repurposed and sold domestically shall comply with Clause 5, Article 25 of Decree No. 08/2015 / ND-CP, which is amended and supplemented in Clause 12 Article 1 of Decree No. 59/2018 / ND-CP.
The repurposing and domestic consumption of goods, which have import and export procedures done, is only implemented after customs procedures for new customs declarations are completed.
The repurposing and domestic consumption for goods subject to export or import license must be approved in writing by the license issuers.
The taxpayer must fully declare, pay taxes and fines when goods are sold domestically or repurposed.
According to these provisions, the General Department of Customs guided that if enterprises import industrial sewing machines subject to import tax exemption but not subject to VAT, now repurposed and domestically sold, they must declare a new customs declaration and must declare and fully pay taxes and fines.
VAT on repurposed goods
Pursuant to Clause 2, Article 7 of Circular No. 219/2013 / TT-BTC of December 31, 2013 of the Ministry of Finance guiding the implementation of the VAT Law and Decree No. 209/2013 / TT-BTC of Government dated December 18, 2013 detailing and guiding the implementation of a number of articles of the VAT Law, the price for VAT calculation on imported goods is determined as follows:
“The taxable price of imported goods is the import price at the border checkpoint plus special excise tax (if any) plus environmental protection tax (if any). The import price at border checkpoints is defined according to regulations on taxable price on imported goods.
If imported goods are eligible for exemption or reduction of import tax, the price VAT calculation is the import price plus import tax which is determined according to the payable tax rate after the exemption and reduction
Pursuant to Point b, Clause 2, Article 17 of the Ministry of Finance's Circular No. 39/2015 / TT-BTC of March 25, 2015, providing for customs value imports and exports, the imports have already been used in Vietnam and repurposed, which were classified into entities that are non-taxable, exempted from taxes or considered tax exemption, the customs value is the actual or future payment at the time of repurposing and shall be determined according to the rules and methods for customs valuation specified in this circular.
Based on the above provisions, when an enterprise imports industrial sewing machines subject to import tax exemption, the price for VAT calculation is the import price. When repurposing and domestically selling goods exempted from import tax, enterprises must declare and pay the full import tax amount (which is determined at the time of repurposing and domestic consumption) and fines (if any) and additional VAT amount based on the import tax payable.
Therefore, VAT payable under the new customs declaration is the additional VAT amount (due to the arising of import tax amount in the formula for VAT calculation) compared with the time of the initial imports subject to import tax exemption (the formula for VAT calculation does not include import tax).
If at the time of repurposing and transferring for domestic consumption, the import tax on the goods is 0 percent, the VAT payable is 0 VND.
Guiding VAT deduction for repurposed goods, the General Department of Customs said Article 2 of Circular No. 219/2013 / TT-BTC dated December 31, 2013 of the Ministry of Finance: “Goods and services subject to VAT are those used for production, trading, and consumption in Vietnam (including those purchased from overseas organisations and individuals), except for the goods and services in Article 4 of this circular.
In Clause 1, Article 14 of Circular No. 219/2013 / TT-BTC: “Input VAT on goods and services used for manufacture or sale of goods/services subject to VAT shall be deducted in full, including non-refundable input VAT on damaged goods.”
Besides, based on Clause 10, Article 1 of Circular No. 26/2015 / TT-BTC of February 27, 2015 of the Ministry of Finance, stipulating conditions for VAT deduction as follows: "Legitimate VAT invoices for purchased goods and services or receipts for payment of VAT on imported goods, or receipts for payment of VAT on behalf of foreign organisations that do not have Vietnamese legal status and the organisations and individuals, and the foreigners that do business or have income in Vietnam.”
Proof for non-cash payments for the purchased goods and services (including imported goods) that cost VND 20 million or more, except for the imports that cost below VND 20 million each, purchased goods and service that cost below VND 20 million inclusive of VAT, and imports being gifts, donations from overseas organsations and individuals.
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Accordingly, at the time of changing use purpose and transfer for domestic consumption of machinery and equipment, if enterprises have to pay additional VAT which shall be deducted if it meets conditions and shall not be refunded.
By Thu Trang/ Huyen Trang