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Trade fraud threatens VAT refunds

Tax departments in southwestern provinces that share a border with Cambodia have warned about an increase in trade fraud relating to value added tax (VAT) refunds during unofficial cross-border trading by newly-established enterprises.

Trade fraud, VAT refunds, fake documents, cross-border trade

Customs staff check goods at Moc Bai International Border Gate in HCM City. Newly established enterprises are taking advantage of policies on unofficial cross-border trade in southwestern provinces.

At a conference on managing VAT refunds held early this month in An Giang Province, the Inspection Department under the General Department of Taxation revealed that many enterprises were taking advantage of the policies on unofficial cross-border trade.

This includes cash payments, being exempt from goods inspections or only having inspections on certain quantities of goods, its representative said, adding, in many cases enterprises were printing their own invoices so they could submit fake documents for VAT refunds.

The VAT refund for enterprises which have goods exported through unofficial cross-border trading between Viet Nam and Cambodia has jumped sharply over the last three years.

Tax refunds from State's budget in 2011 rose by 194.6 per cent compared with 2010, refunds in 2012 also increased by 190 per cent compared with 2011 while the amount of tax that enterprises paid to the State was only about two per cent of all refunds.

In An Giang Province alone, the authorities doubted the surge in exported mobile phones, as 10 local enterprises claimed to have exported the same number of mobile phones as the population of Cambodia.

Some enterprises were found to have written their own invoices or used the invoices of other companies, to make fake documents that helped them to get their VAT partially or wholly refunded.

Other enterprises have taken advantage of the border between Viet Nam and Cambodia – a river 400-600m wide in the middle of a dense river network – to transport goods and then re-export the goods again and again.

Deputy head of An Giang Customs Department Nguyen Tan Binh said that after detecting the cross-border trade fraud, the department stepped up its inspections.

They stopped granting customs verification to large sums of Vietnamese dong that Cambodian business brought into Viet Nam to pay for imported goods, he said, adding that customs offices required them to show the documents for their imported/exported goods and thoroughly examined the suspected goods.

However, customs officers would make post-clearance audits suddenly, without warning because in many cases, after being informed of the audit, many enterprises took the first steps towards insolvency.

Binh said that under staffing and a lack of space to examine goods in were the major difficulties.

The recording procedures used by customs was very reliant on the completed customs application submitted by enterprises, which also posed many risks.

The Director General of the General Department of Taxation, Bui Van Nam, said that to curb violations relating to VAT refunds, the general department was asking the Finance Ministry to not allow cash payments in unofficial cross-border trading and local exporters are now required to submit goods export contracts in their tax refund applications.

He also urged the relevant agencies in the south western provinces including taxation, customs, banking and the police, to work closer together to curb the fraudulent VAT refunds, which have caused a serious loss to the State's budget.

Viet Nam and Cambodia share a 1,270km long border, encompassing the provinces of Binh Phuoc, Tay Ninh, Long An, Dong Thap, An Giang and Kien Giang. Altogether they house 47 border gates and nine border economic zones, to facilitate cross-border trade.

Source: VNS

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