Anti-tax-fraud regulation brewing trouble for Vietnam coffee exporters

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Farmers harvest coffee in the Central Highlands province of Dak Nong / PHOTO COURTESY OF TUOI TRE

Coffee exporters complain that a government measure to tackle tax fraud has failed to serve the purpose but also added one more to their list of woes.

At a meeting of 20 major coffee exporters held in Ho Chi Minh City earlier this week they said since the Ministry of Finance introduced a regulation on refunding value-added tax on July 1, they have not been able to get refunds worth billions of dong for no fault of theirs, Saigon Tiep Thi newspaper reported.

In Vietnam, exporters mostly do not buy coffee from farmers but from agents, and pay 5 percent VAT to them. The sellers submit tax papers to the authorities, and the exporters get their VAT refund after filing documents to prove the purchased coffee has been exported.

The exporters said since in most cases coffee passes through many traders' hands before reaching them, it takes authorities up to a year to verify all the transactions before refunding the tax to them.

Worse still, the refund is denied if even one of the traders was found to have evaded tax, they said.

The regulation is aimed at preventing tax fraud by coffee traders.

Do Ha Nam, deputy chairman of the Vietnam Coffee-Cocoa Association (Vicofa), said the delay in tax refunds is affecting more and more exporters.

Some companies are unlikely to export coffee from the next crop in October since they have yet to get back tens of billions of dong, he said.

Some exporters like Packsimex Company of Ho Chi Minh City threatened to stop coffee exports if they do not get the refund.

Nguyen Thi Ngoc Mai, director general of Packsimex, said her company plans to apply for this next week and then halve its payroll if it does not get VND12 billion (US$567,000) refunded.

Exporters should get back their VAT once they submit documents proving their purchases and tax payments and exports, Nam said.

On the other hand, the new regulation has been unable to prevent tax fraud either.

Tuoi Tre (Youth) newspaper quoted Nguyen Minh Ban, director of Minh Huy Company based in the southern province of Dong Nai, as saying that his company stopped exports of coffee in June though it keeps getting orders.

He explained how agents took advantage of the new regulation to scam both the tax authorities and exporters: They would offer to pay coffee farmers more than the market price and buy large quantities.

They would then sell to exporters at market price and pocket the VAT paid by exporters instead of passing it on to the tax agencies.

Honest coffee exporters could therefore not compete with unscrupulous ones who resorted to such tactics, he said.

Vu Van Hai, director of Haprosimex Company in HCMC, also said his company has stopped exporting coffee.

"VAT fraud has damaged the business environment in Vietnam; true businesses are at risk," he lamented.

Nam of Vicofa said all exporters are at risk because of the VAT regulation, warning that if the situation persists, no business would dare enter the coffee market.

Nguyen Quang Binh, director of Chanh Tinh Anh Company in HCMC, said with Vietnam currently losing market share to countries like Indonesia and Brazil, the VAT problem would just worsen things.

In the last few months Vietnam's exports have been 80,000-90,000 tons a month compared to 110,000-120,000 tons earlier, he said.

Nguyen Xuan Thai, director of Thang Loi Coffee Company based in the Central Highlands province of Dak Lak, said VAT should be scrapped because 95 percent of coffee is meant for exports.

Nguyen Nam Hai, another vice chairman of Vicofa, told the meeting that exports from last crop were down 23.7 percent to 1.4 million tons, and turnover fell 22.8 percent to $2.8 billion.

In the last two years coffee exporters have continuously suffered losses with many large ones going bankrupt, he said.

The industry's bad debts to banks are estimated to be around VND8 trillion ($378.2 million), he added.

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