Preventing refund fraud of value-added tax

Hanoi Tax Department has identified and developed a number of additional criteria to classify and screen businesses with signs of risk, thereby taking appropriate tax management measures. Photo: Thuy Linh

Performing thousands of inspections and examinations after tax refund

The management and prevention of fraud on illegal trading and use of invoices and the prevention of fraud and profiteering to appropriate VAT refunds have been paid special attention by the Tax sector and solutions have been implemented synchronously and drastically to prevent, proactively detect and promptly handle violations in accordance with the law.

According to statistics of the General Department of Taxation, in 2022, the whole tax sector will carry out 6,265 inspections and examinations after VAT refund (equivalent to 174.66% compared to the same period in 2021). The total amount of tax refund and penalty is 630,837 billion VND. Notably, the General Department of Taxation evaluated the data of 11,829 businesses that had requests for export VAT refunds from January 1, 2018 to the end of August 30, 2021 and identified 70 businesses with high risks of tax refund.

The direction of tax refunds and invoices in 2022 is focused by the General Department of Taxation in guiding Tax authorities at all levels to identify violations in invoice management; identify fraudulent acts of tax evasion, appropriation of VAT refunds for each export item such as agricultural products (cashew, cassava, wood chips, rubber, etc), electronic components (computers, ram, etc); provide professional guidance on inspection and verification so that tax authorities at all levels can promptly grasp information and synchronously deploy solutions.

At the Hanoi Tax Department, this unit has focused on inspecting and examining businesses with tax risks in order to prevent and deter businesses from deliberately evading and using illegal invoices to misappropriate tax refunds, creating fair performance of tax obligations for businesses.

According to Mr. Mai Son, Director of the Hanoi Tax Department, through the actual management and coordination with the police about the behavior of businesses showing signs of buying and selling e-invoices, Hanoi Tax Department has identified and developed some more criteria to classify and screen businesses with signs of risks, thereby taking appropriate tax management measures. The Tax Department has filtered and added to the list of 1,142 enterprises showing signs of risks in the management and use of invoices.

Notably, in 2022, Hanoi Tax Department reviewed and handled 243 businesses using illegal invoices with 1,190 invoices, total value of goods is 564.3 billion VND, and VAT is 55.9 billion VND.

The Department has closely coordinated, exchanged and provided complete and timely information to the police agency and transferred the information of enterprises showing signs of risks in using invoices to the police.

Although not a large province, Lang Son borders China with two international border gates, one main border gate and 9 sub-border gates, with many trading enterprises, doing import and export business, in which there are a number of items identified as having many risks in VAT refund such as agricultural products, tapioca starch, etc.

Hence, Lang Son Tax Department had to take many drastic measures to fight VAT refund fraud. According to Lang Son Tax Department, in 2022, especially for commercial enterprises exporting tapioca starch, the Tax Department has pre-checked for tax refund seven times, requesting a refund of VND 27.5 billion, the tax amount that is not refunded is 470 million VND, the amount that is currently pending for verification is 12.2 billion VND.

Fraudulent behavior is getting more sophisticated

Through cases of VAT refund fraud, there are many signs of risk in these businesses. Lang Son Tax Department pointed out the following signs: the company has no fixed assets, factories, no warehouse registration, no expenses for renting warehouses and yards; contracts for the purchase of goods with a large value (over VND 2,000 billion) but very sketchy, according to a sample form for common use; export sales contracts of great value (over VND 2,000 billion), late payment, extended payment terms for exported goods (360 days from the date of receipt of goods); there are no documents or dossiers to prove the transportation of goods from the seller's warehouse (in Ho Chi Minh City) to the place of receipt for export (Mong Cai border gate - Quang Ninh).

According to some tax departments, the results of verification of sales enterprises show that VAT invoices for goods and services purchased by businesses have tax risks such as these enterprises change their operating status many times, change business location many times, sales have big fluctuations; remove the business address; declaration of purchased and sold goods do not correspond to each other, there are signs of tax evasion.

In addition, there are still many difficulties in tax administration and VAT refund management in particular, such as the tax authority's power does not have the investigation function to trace the origin of goods and services; and there is pressure to comply with VAT refund time.

On the other hand, fraudsters who take advantage of tax refunds have more and more sophisticated tricks to hide their violations such as establishing and using many legal entities to circulate goods around many enterprises; the gap from identifying signs of risk to collecting evidence of violations by taxpayers is still very large.

Moreover, the tax law is not comprehensive enough to have provisions for handling such as the case where an enterprise uses an invoice to purchase goods and services from an enterprise that leaves its business address after the time of invoice issuance; can't find overseas buyers or foreign parties confirm not to import goods of Vietnamese enterprises.

The General Department of Taxation will develop a risk system that allows tax refund risks to be classified electronically, automatically; meeting the provisions of Circular No. 31/2021/TT-BTC.

Along with that, the function of risk reporting on electronic invoices, and warning criteria in the risk report in the e-invoice data will be added.

Particularly for high-risk businesses, the tax sector will issue warnings and put them into key supervision. From there, proposing a plan for the right to exploit data of electronic invoices of the whole industry to tax departments to ensure that data can be exploited for tax and invoice management, simultaneously ensuring the confidentiality of information for businesses.