Amendment of Law on Value-Added Tax (VAT) to solve the problem of wind power in Vietnam

Amendment of Law on Value-Added Tax (VAT) to solve the problem of wind power in Vietnam

Enterprises are proposing that instead of requiring an electricity operating license to receive a tax refund, energy projects will be refunded VAT as soon as they have signed electricity sale contracts.

The Energy Association has just sent a document calling for help to the Prime Minister about the fact that many businesses investing in the electricity industry have been stopped by the General Department of Taxation to refund VAT. Consequently, businesses now face the risk of arrears and fines for the late payment of thousands of billions of VND.

Discussing this hindrance, Mr. Bui Van Thinh – Chairman of Binh Thuan Association of Wind and Solar Power, General Director of Thuan Binh Wind Power Joint Stock Company emphasized that the mixed understanding between Ministries of Finance and Ministry of Industry and Trade can push many renewable electricity investors into bankruptcy.

Can’t have VAT refund unless businesses have an electricity operating license?

Currently, businesses investing in renewable electricity are having their tax refunded based on Circular 130/2016 of the Ministry of Finance. The issuance of Document No. 470 by the General Department of Taxation on February 25, 2021, on the review, recovery, and refund of VAT for investment projects in the power sector submitted before the time of obtaining the electricity operating license is a heavy blow to renewable electricity investors. 

Mr. Thuan said that they were requested by the Tax Department of Binh Thuan province to collect the refunded VAT amount (10% of the value of imported equipment), and fined 0.03%/day for late payment from the date of the tax refund.

According to the tax authority’s explanation, although an investment project in the power sector is a Conditional Business Line. However, according to the Law on VAT, these projects are only entitled to VAT refund when they are granted an electricity operating license.

On the other hand, according to Circular No. 21/2020 dated September 9, 2020, of the Ministry of Industry and Trade stipulating the order and procedures for granting and revoking electricity activity licenses, “When the plant has fully met the operating conditions and is accepted, only then will the plant be granted an electricity operating license.”

Contradictions of laws

Investment in renewable electricity is regulated as a conditional business line in the Investment Law. Once it has been regulated as a conditional business line, just because it isn’t granted the electricity operating license doesn’t mean that it is no longer a conditional business line. 

Even the Ministry of Industry and Trade agreed with this statement, expressed in a document sent to the Ministry of Finance also affirmed: “Electricity operating license is not a business license with conditional investment and business lines”.

Amendment of Law on Value-Added Tax(VAT) to solve the problem of wind power in Vietnam

If implementing arrears and fines as above, many businesses investing in renewable electricity will have to go bankrupt or suffer heavy losses. Because the investment costs, capital recovery plan … have been calculated by the enterprise before investing in the project and taking into account the VAT refund plan.

In renewable electricity investment, equipment always accounts for the main part of the capital. The 10% VAT arrears along with tax penalties can push many businesses to the edge of bankruptcy. For example, Thuan Binh Wind Power Joint Stock Company is currently investing in 02 wind power projects with an investment capital of 2,000 billion VND. If VAT arrears 200 billion, businesses fail.

Propose the government to unify the policy of the Investment Law with the Law on VAT and the Law on Electricity

For investment projects, the highest priority must be the policies and regulations of the Investment Law. However, there is a conflict between these laws. The Investment Law stipulates that renewable electricity investment is a conditional business line. Therefore, other laws such as the VAT Law or the Electricity Law must agree on the policy of the Investment Law.

The Government should promptly submit to the National Assembly to amend the Law on VAT to uniformly refund VAT for conditional business enterprises. Instead of demanding an electricity operating license to receive a tax refund, energy projects are entitled to a VAT refund as soon as they have signed a Power Purchase Agreement (PPA), without the need for an electricity operating license.

The government should ask the ministries to come together to revise and agree on the legal regulations. Ministries are in charge of amending legal regulations in the direction that electricity projects are entitled to VAT refund in the investment stage. Because this is the stage when investors need capital, not the completed project.

ASL LAW is Project and Energy law firm in Vietnam. If you need any inquiry, please contact us.

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