Banks are in tears as they face retroactive tax collection from Letters of Credit (L/C).

Báo An ninh Thủ đô•15/11/2023

ANTD.VN - The Vietnam Banking Association (VNBA) has recently sent a document to the Ministry of Finance and the State Bank of Vietnam, proposing solutions to address the value-added tax (VAT) issues related to letter of credit (L/C) services.

Previously, on August 12, 2023, the Government Office issued Document No. 324/TB-VPCP announcing the conclusions of Deputy Prime Minister Le Minh Khai at a meeting on VAT for Letter of Credit (L/C) activities. This document instructed the Ministry of Finance to collect VAT on L/C activities based on the provisions of the VAT Law, the 2010 Law on Credit Institutions, and related laws; and to consider and handle administrative violations regarding VAT and late payment penalties for L/C activities...

Regarding this directive, VNBA stated that it has received feedback from member banks about obstacles and shortcomings that could seriously impact the banking system's operations if the Deputy Prime Minister 's conclusion is implemented.

It's not the banks' fault.

The association stated that, regarding the regulations on VAT payment for L/C services, based on the provisions of the VAT Law and its guiding documents, credit granting services are exempt from VAT. Accordingly, from 2011 to the present, credit institutions have not collected VAT on fees related to bank payment guarantee commitments; they only collect VAT on fees related to L/C payment services.

However, in 2019, the State Audit Office stated that, based on Clause 15, Article 4 of the 2010 Law on Credit Institutions, which defines the provision of payment services through accounts as including Letters of Credit (L/C), the failure of credit institutions to declare and pay VAT on L/C services is contrary to the provisions of the VAT Law.

The General Department of Taxation subsequently issued a document requesting local tax departments to review the tax declarations and payments of credit institutions in their respective areas.

However, the Banking Association argues that the fact that credit institutions have not paid VAT on L/C fees for credit granting purposes since 2011 is not the fault of the credit institutions; they did not intentionally violate or evade their tax obligations.

Because the nature of the Letter of Credit (L/C) service did not change before and after January 1, 2011 (the effective date of the 2010 Law on Credit Institutions). After the Law on Credit Institutions came into effect, the Ministry of Finance did not amend the guidance document on VAT payment; the General Department of Taxation still maintained the VAT policy guidance for L/C fees.

Các ngân hàng sẽ bị truy thu thuế đối với phí L/C

Banks will be subject to retroactive tax collection on L/C fees.

According to VNBA, VAT is an indirect tax. In cases where additional payment is required, credit institutions must contact and collect it from customers. Customers will likely disagree because the bank's listed fee schedule excludes L/C fees related to credit granting from VAT. Furthermore, many customers have already completed their annual financial statements and audits.

Furthermore, since 2011, many customers have ceased to have business relationships with credit institutions or have been dissolved/bankrupt, making it impossible for credit institutions to collect additional taxes. Instead, they must record and track receivables in their accounting books and financial statements.

Regarding invoice adjustments and supplementary tax returns, when collecting VAT (if any) to pay into the state budget, credit institutions and businesses will face difficulties in issuing VAT adjustment invoices, correcting previously declared figures, paying taxes, and deducting taxes, etc.

From the perspective of credit institutions, the unique system of numerous branches and transaction offices spread throughout the country, coupled with many changes, divisions, and mergers of units from 2011 to the present, and the large volume of transactions occurring over a long period, involving multiple currencies, necessitates significant time, effort, and resources for reviewing, documenting, separating, calculating, and aggregating data from the vast amount of data collected from 2011 to the present.

Furthermore, the principle of VAT is that when credit institutions declare and pay output VAT, their corporate customers (mainly import businesses) are entitled to declare, deduct/refund corresponding input VAT. Therefore, retroactive collection leads to a series of procedures and costs for society as a whole, requiring adjustments to invoices, tax declaration and payment data, deductions/refunds, and increased operational burdens for all businesses, credit institutions, and tax authorities.

The proposal suggests accounting for these expenses as deductible costs when calculating taxes.

Following the issuance of Document No. 324/TB-VPCP, tax authorities in some localities have requested credit institutions to pay VAT, causing confusion and anxiety among their branches regarding the implementation of state policies.

Banks argue that, due to tax arrears arising from 2011 to the present, the resulting late payment penalties are substantial (potentially double the amount of VAT payable), causing difficulties for credit institutions in accounting for tax payments related to late payment penalties and administrative fines (if any).

"The collection of large sums of money and penalties for late payments from commercial banks, which are not due to any fault of the banks, would be unfair to the banks, especially those that have always complied with and adhered to legal regulations; moreover, if this policy is enforced, it will seriously affect the reputation and image of our country's banking system, and erode confidence in the State's policies and the investment environment in Vietnam," VNBA stated.

Based on the aforementioned difficulties and shortcomings, and the recommendations of credit institutions, the Banking Association proposes that the Ministry of Finance recommend to the Government that credit institutions be allowed to account for the VAT amount collected from L/C activities from 2011 to the present as deductible expenses when calculating corporate income tax, because this tax is an obligation of the customer and the credit institution has no basis/cannot recover it.

At the same time, there is no need to issue adjustment/replacement invoices for invoices issued by credit institutions that have incorrectly applied the VAT rate.

This allows credit institutions to declare and pay VAT centrally at their head office, without having to declare and pay it to the local tax authority. In cases where adjustments to the local tax authority are necessary, the General Department of Taxation will make the adjustments to the local tax authority.

No penalties will be imposed for late payment of VAT or for other administrative violations.

The local tax authorities are instructed not to require credit institutions to declare adjustments and pay additional taxes until specific guidance is issued by the Ministry of Finance and the General Department of Taxation for consistent implementation nationwide.

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