Amending the Decree, defining the criteria clearly for tax exemption for imported goods for export processing

Declaring and calculating tax according to the tax rates of raw materials. Picture: T. Trang.

Declaring and calculating tax according to the tax rates of raw materials

Commenting on this content, the representative of the Ministry of Foreign Affairs said that the draft should add "components" of processed products that are exempted export and import tax in accordance with the provisions of the Law on export and import duty. However, Clause 6 of the Law only mentions that processed products produced from domestic raw materials with export tax, when they are exported under the contracts are exempt from tax.

In addition, some Customs Departments commented that in Clause 4, Article 1, amended and supplemented Article 10, in Item b, point 1, the proposal was amended to read: "b) Sample goods not used for sale, exchange or consumption are shown in the processing contract or appendix to the processing contract and managed as raw materials for processing”.

At Point d, Clause 2, Clause 4, Article 1, amending and supplementing Article 10: "Upon final settlement, taxpayers shall make declaration ... according to Form 14, Appendix VII promulgated together with this Decree. Details of 14 sample are similar to form No.15/BCQT-NVL/GSQL of Circular No. 39/2018/TT-BTC should be generally guided, avoiding duplication".

On receipt of the above opinion, the drafting committee stated that Clause 6, Article 16 of the Law on Export and Import Taxes, stipulates that raw materials, supplies and components imported for the production of export goods are exempt from tax. However, Clause 1 of Article 10 of Decree 134 provides that the scope of imported goods for processing is exempted from import duty (including semi-finished products, machinery, equipment imported for processing, sample goods, components and spare parts for warranty).

Reviewing other tax exemptions in Article 16 of the Law on Import and Export Taxes shows that the provisions of Clause 1, Article 10 of Decree No.134/2016/ ND-CP are legally applicable (imported sample goods not used for sale, exchange or consumption (Item 10), machinery and equipment temporarily imported for re-export, temporarily exported for re-import in service of foreign traders (Point a, Clause 9) are exempt tax, but not completely consistent with the provisions of Law 107. At the same time, the legal reviewing of foreign trade management (Decree No.69/2018/ND-CP) showed that besides raw materials, materials for the processing of duty-free quotas are auxiliary materials. Accordingly, pursuant to the provisions of Law 107, Decree 69/2018/ND-CP, the Ministry of Finance shall submit to the Government amendments and supplements as provided for in Clause 1 of Article 10 in the direction of supplementing the words "imported auxiliary materials" and “imported sample goods” that are exempted tax must be shown in the processing contract; Equipment and machinery must be imported by mode of temporary import for re-export for processing (according to the customs legislation, machinery and equipment imported for processing contracts must carry out procedures for temporary import for re-export).

At Point g, Clause 1, Article 10 of Decree 134, the tax exemption for processed products shall be: "In cases the processed products are produced from domestic raw materials and supplies with export tax. When they are exported, the value of domestic raw materials and supplies constituting the exported products according to the tax rates of raw materials and supplies". However, this Regulation is not yet clear, the customs declarers shall have to declare and calculate the tax on the declaration "export processed goods" or open the declaration "imported raw materials".

Basing on the provisions of Clause 6, Article 16 of the Law on Export and Import Taxes: "Goods processed for export, which are produced from domestic raw materials and supplies subject to export tax, shall not be exempt from tax on the value of raw materials and materials in the corresponding country constituting the export product”, the Ministry of Finance shall submit to the Government for supplementation specified at Point 1, Article 10 of the draft decree that taxpayers must declare and calculate export tax on the export goods declaration for the value of raw materials and supplies constituting domestic products, and in export products shall be equal to the tax rates of raw materials and supplies.

Specifying the basis for identifying the exempted goods

Commenting on this content, Vietnam Business Forum (VBF) said that the regulation "When the enterprises submit the settlement report or their processing contract is expired ... must re-export or transfer to carry out processing in Vietnam according to the law on foreign trade management or being allowed to be disposed according to the provisions at Point 3, Clause 1 of this Article or be used as gifts and presents". According to the regulations, imported raw materials for processing excess is not allowed to transfer domestic consumption in the form of sale. This seems contradictory with the following paragraph about changing the purpose of use with importing processed goods. Therefore, the VBF proposed amendments to avoid misunderstandings or heterogeneous interpretations, leading to implementation difficulties. In addition, the content of Clause 2 of Article 10 is the basis for determination of duty-free goods for processing, but the content of regulations on submitting settlement reports are unclear. In case of necessity to stipulate this content, it is proposed to review and switch to the provisions of procedural articles.

In addition, the VBF also reflected: in Clause 4, Article 10: "Scrap, waste and defective products in the production norms are exempted from import duty but must be declared and pay Increased value added tax, special consumption tax and environmental protection tax (if any) to the customs office according to the tax rate and the dutiable value of discarded materials, waste and defective products, made according to form 15, appendix VII, issued together with this Decree". The payment of taxes as provided in this clause is not regulated by the Law on Import and Export Taxes. Moreover, the purpose of tax payment is not clear. When selling, businesses have to pay these taxes to the Internal Taxation Agency and so basically it also does not affect the tax obligations. Therefore, we need to remove the regulation that “the enterprise have to declare the tax payment to the customs office for scrap, waste and defective products obtained after the process of processing and producing export goods”.

Responding to this opinion, the Ministry of Finance said that according to provisions of Law 107, Decree 69/2018/ND-CP, opinions of localities, amendments and supplements to Article 10 of Decree No. 134 were amended in the following directions: The notice of the processing establishment, the processing contract, the processing establishment of the re-processing partner, the re-processing contract shall comply with the provisions of the customs legislation for uniform implementation.

In cases the tax payers export a part or whole of imported raw materials, supplies and components abroad or non-tariff areas for processing one part of the product or whole product, then the imported products shall be imported. If exporters return to Vietnam for export or continue to export, taxpayers shall be exempted from export tax on raw materials, supplies and components for processing. Products imported for offshore processing of goods back to Vietnam shall pay import tax according to the provisions at Point d, Clause 1, Article 11 of this Decree (paid tax on added value amounts, including overseas processing expenses of Products subject to the import tax rate of processed products). Products subject to processing at the non-tariff area and returned to Vietnam shall have to pay import tax according to the provisions of Article 22 of this Decree (according to the tax rates of imported products and the tax calculation values of raw materials, import from foreign countries constituting imported products into the domestic market).

Goods imported for actual export after the destruction of new products are exempt from import duty and if they export new products, they will be exempted from export tax.

Discarded materials, waste products and defective products that were created during the process of domestic consumption (except for waste products for domestic consumption under the name of the product) are not subject to customs clearance and are exempted from import duty, but they must pay value added tax, special consumption tax and environmental protection tax (if any) to customs offices according to the tax rates and dutiable values of discarded materials and defective products according to form 15 in Appendix VII issued together with this Decree. Taxpayers may choose to declare each transfer of domestic consumption or declare the total amount of domestic consumption transferred on a monthly basis to the customs office.

For faulty products within the actual production norms when transferring their domestic consumption according to the names of their own products, they shall have to fill in the customs procedures, declare and pay import tax, value added tax, special consumption tax and security tax, (if any) to the customs office according to the tax rate and the dutiable value of the complete product.

Scraps, discarded materials and defective products used for recycling or manufacture of products, if they are exported, shall be exempt from export tax. If they are transferred for domestic sale, they must go through customs procedures and declare and pay tax at the tax rates and taxable value of the product.