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Customs officers of Huu Nghi Border Gate Customs Branch (Lang Son Customs Department) inspect imported machinery and equipment. Photo: H.Nu

Conditions for VAT exemption?

Vietnam Veterinary Equipment and Technology Co., Ltd. specialize in importing specialized ultrasound equipment and testing for cattle and poultry such as buffaloes, cows, pigs, horses, goats, chickens, and ducks. According to the company, due to its unique technical characteristics, equipment is used only for agricultural animal farms and veterinary medical examination and treatment facilities, so not for humans.

To apply tax policies following the regulations, the company wonders if the equipment is exempted from VAT as prescribed and if the equipment is classified into specialized machinery and equipment for agricultural production?

According to Article 3 of Law No. 71/2014/QH13 dated November 26, 2014, amending and supplementing several articles of tax laws; Clause 1, Article 3 of Decree 12/2015/ND-CP; Clause 2, Article 1 of Circular 26/2015/TT-BTC of the Ministry of Finance, "specialized machinery and equipment used for agricultural production" are not subject to VAT.

The Ministry of Finance issued Official Letter 12848/BTC-CST dated September 15, 2015, and Official Letter 1677/BTC-TCT dated January 29, 2016, guiding local Customs Departments and local Tax Departments on VAT policy for specialized machinery and equipment used for agricultural production.

Accordingly, Point 2, Official Letter 1677/BTC-TCT guides: "Ministry of Agriculture and Rural Development (MARD) or Departments of Agriculture and Rural Development of provinces and cities certify specialized machinery and equipment serving agricultural production which has not been guided in the Clause 2 Article 1 Circular 26/2015/TT-BTC; Point 1 Official Letter 12848/BTC-CST and point 1 of this Letter according to the principle: Machinery, equipment and components to assemble into machinery and equipment used for agriculture production and not for other purposes are machinery and equipment used for agricultural production, are not subject to VAT as prescribed in Clause 1, Article 3 of Law No. 71/2014/QH13 amending and supplementing several articles of tax laws".

The General Department of Customs said that specialized equipment for ultrasound and testing for cattle and poultry had not been described in Clause 2, Article 1 of Circular 26/2015/TT-BTC; Point 1 Official Letter 12848/BTC-CST and Point 1 Official Letter 1677/BTC-TCT, so they are entitled to tax incentive policies, provided that the company must have a certification of the MARD or Departments of Agriculture and Rural Development of provinces and cities to confirm that those machinery and equipment are used for agriculture production according to the principle: Machinery, equipment and components to assemble into machinery and equipment used for agriculture production and not for other purposes are machinery and equipment used for agricultural production, are not subject to VAT as prescribed in Clause 1, Article 3 of Law No. 71/2014/QH13 amending and supplementing some articles of tax laws.

However, to serve as a basis for tax exemption, the certification must determine the technical structure of the machinery and equipment, such as model, specifications, detailed functions etc.

Pharmaceutical materials enjoy a 5% tax

Facing the problems in tax declaration for pharmaceutical materials, the General Department of Customs guides: Point 1, Clause 2, Article 8 of Law on VAT No. 13/2008/QH12 stipulates 5% tax rate for "pharmaco-chemistry products and pharmaceuticals used as raw materials for the production of curative and preventive medicines;

Clause 2, Article 6 of Decree 209/2013/ND-CP of the Government stipulates the VAT rate: The tax rate of 5% is applied to the goods and services defined in Clause 2, Article 8 of the Law on VAT, and Clause 3 Article 1 of Law amending and supplementing several articles of Law on VAT. Some cases apply the value-added tax rate of 5% are specified as follows: Pharmaco-chemical products and pharmaceuticals used as raw materials for the manufacture of curative and preventive medicines specified at Point 1, Clause 2, Article 8 of the Law on VAT".

In addition, Clause 11, Article 10 of Circular 219/2013/TT-BTC of the Ministry of Finance stipulates the 5% VAT rate as follows: Medical equipment, including radiographic equipment, equipment and instruments for surgery and treatment; ambulances; instruments for blood pressure measurement, cardiography, blood infusion, syringes; birth control equipment, and other medical equipment certified by the Ministry of Health.

Cotton wool, bandages, gauze pads, and medical tampons; medicines including finished medicines and raw materials, except for functional foods; vaccines; bioproducts, distilled water to mix with injectable medicines or intravenous fluids; chemicals used for testing and sterilization; caps, clothing, facemasks, gloves, boots, medical towels, breast implants and skin fillers (not including cosmetics).

Clause 1, Article 4 of Circular 83/2014/TT-BTC dated June 26, 2014, of the Ministry of Finance, guiding the implementation of VAT according to the list of goods of Vietnam's imports of imports: "In case of goods, it is specified in detail. The objects are not subject to VAT or apply the VAT rate of 5% or 10% as prescribed

Clause 1, Article 4 of Circular 83/2014/TT-BTC dated June 26, 2014, of the Ministry of Finance, guiding the implementation of VAT according to the list of Vietnam's imports, stipulates: "For goods which are not liable to VAT or to be subject to the VAT rate of 5% or 10% as specified in the Law on VAT and guiding documents, the provisions of such documents shall be applied;

Also, Circular 219/2013/TT-BTC of the Ministry of Finance provides that the rates of VAT mentioned in Article 10 and Article 11 shall be uniformly applied to each type of goods and service, whether imported, manufactured, processed, or traded. Therefore, if the rate of VAT in the preferential import tariff schedule is found not conformable with this Circular, this Circular shall apply."

Comparing with the above provisions, the General Department of Customs said that " Pharmaco-chemical products and pharmaceuticals used as raw materials for the manufacture of curative and preventive medicines" are defined as goods subject to 5% VAT which is uniformly applied to each type of goods and services, whether they are imported, manufactured, processed, or traded according to the Law on VAT and guiding documents.

Accordingly, when an enterprise imports goods declared as pharmaceutical materials under the import permit of pharmaceutical materials granted by the Ministry of Health, the imported goods are subject to 5%VAT rate.

Customs officers of Huu Nghi Border Gate Customs Branch (Lang Son Customs Department) inspect imported machinery and equipment. Photo: H.Nu

However, if an enterprise imports pharmaceutical materials following the law on pharmaceuticals but has not yet declared and paid VAT as prescribed at Point 1, Clause 2, Article 8 of the VAT Law 13/2008/QH12, the enterprise must declare and pay VAT following the VAT Law, Tax Administration Law and Customs Law.