Income tax cannot be reduced after the acceptance and final settlement on or after 31st December 2022
Mr. Dang Van Hai is currently working at a company that operates in the field of construction for transportation and civil projects. In September 2022, his company participated in a bidding package for construction and installation works. At that time, the company prepared an estimate for bidding (including the entire VAT of 8%; if the VAT were 10%, the bid price would exceed the package price, leading to a loss in the bidding process).
Mr. Hai's company won the bid and signed a contract at the bid price. The implementation period of the package is from September 2022 to March 2024. In March 2023, for the first payment installment, the client requested an invoice for the value-added tax at 10%.
Mr. Hai asked whether it is correct for the client to request a 10% VAT invoice during the inspection, payment, and final settlement after December 31, 2022. Also, is there any way to resolve the 2% VAT difference that the contractor has to refund to the state?
In the case where the client requests to add a 2% VAT appendix to the contract, but there is limited reserve funding for the additional 2% VAT, which would result in exceeding the total investment and insufficient funds for other quantity changes during the construction process, what should be done in this situation?
The Bac Giang Provincial Tax Department responded to this issue as follows:
Based on Decree No. 15/2022/ND-CP dated January 28, 2022, of the Government, which stipulates the policies on tax exemption and reduction according to Resolution No. 43/2022/QH15 of the National Assembly on financial and monetary policies supporting the Program for economic and social recovery and development:
- In Article 1, concerning the reduction of Value Added Tax (VAT):
"Article 1. Reduction of VAT
1. Reduce VAT for groups of goods and services currently subject to a tax rate of 10%, except for the following groups of goods and services:
a) Telecommunications, financial activities, banking, securities, insurance, real estate business, metal and pre-cast metal products, mining products (excluding coal mining), coke, refined petroleum products, chemical products. Details are provided in Appendix I issued together with this Decree.
b) Goods and services subject to special consumption tax. Details are provided in Appendix II issued together with this Decree.
c) Information technology as defined by information technology laws. Details are provided in Appendix III issued together with this Decree.
d) The reduction of VAT for each type of goods and services specified in this Paragraph 1 shall be uniformly applied at all stages of import, production, processing, and commercial business. For coal products sold (including cases of coal mining followed by screening and classification according to a closed process before selling), they are subject to VAT reduction. However, coal products listed in Appendix I issued together with this Decree are not eligible for VAT reduction at stages other than the coal mining and selling stages.
In cases where goods and services listed in Appendices I, II, and III issued together with this Decree are not subject to VAT or subject to a 5% VAT rate according to the provisions of the Law on VAT, they shall be implemented in accordance with the provisions of the Law on VAT and shall not be eligible for VAT reduction.
2. VAT reduction rate
a) Businesses that calculate VAT based on the deduction method shall apply a VAT rate of 8% for goods and services specified in Paragraph 1 of this Article...
- In Article 3, concerning the effectiveness of implementation and organization of execution:
"Article 3. Effectiveness of implementation and organization of execution
1. This Decree shall be effective from February 01, 2022.
Article 1 of this Decree shall be applicable from February 01, 2022, until December 31, 2022...”
Based on Decree No. 123/2020/ND-CP dated October 19, 2020, of the Government, which stipulates invoices and documents:
- In Clause 1 of Article 4, concerning the principles of invoice issuance:
"Article 4. Principles of invoice issuance, management, and use of invoices and documents:
1. When selling goods, providing services, the seller must issue an invoice to deliver to the buyer (including cases where goods and services are used for promotions, advertising, samples; goods and services used for donation, gifts, exchanges, remuneration for laborers, and internal consumption (except for goods transferred internally for the continuation of the production process); exporting goods under forms of lending, borrowing, or goods return) and must fully record the content as regulated in Article 10 of this Decree. In the case of using electronic invoices, they must follow the data format prescribed by the tax authorities as regulated in Article 12 of this Decree...".
- In Article 9, regarding the timing of invoice issuance:
"Article 9. Timing of invoice issuance
...2. The timing of invoice issuance for service provision is the completion time of the service regardless of whether the payment has been received or not. In cases where the service provider receives payment in advance or during the service provision, the timing of invoice issuance shall be the time of payment receipt (excluding cases of receiving deposits or advances to ensure the execution of service contracts such as accounting, auditing, financial consulting, taxation; appraisal; survey, technical design; supervision consulting; investment project preparation).
...4. The timing of invoice issuance for specific cases is as follows:
...c) For construction and installation activities, the timing of invoice issuance is the acceptance, handover of the work, construction item, completed construction or installation volume, regardless of whether the payment has been received or not."
Based on Clause 2 of Article 8 of Circular No. 219/2013/TT-BTC dated December 31, 2013, by the Ministry of Finance, guiding the implementation of the VAT Law, and Decree No. 209/2013/ND-CP dated November 22, 2013, by the Government, detailing and guiding the implementation of some articles of the VAT Law:
"Article 8. Timing of VAT determination
...2. For service provision, the timing of VAT determination is the completion time of the service provision or the timing of issuing the invoice for the service provision, regardless of whether the payment has been received or not..."
Based on the aforementioned regulations and instructions and the content of Mr. Hai's inquiry, the Bac Giang Provincial Tax Department responded as follows:
For the groups of goods and services of the company that meet the conditions specified in Paragraph 1 of Article 1 of Decree No. 15/2022/ND-CP dated January 28, 2022, by the Government, VAT reduction is applicable. The specific VAT reduction rates are specified in Point 2 of Article 1 of Decree No. 15/2022/ND-CP dated January 28, 2022.
In the case of the company signing a construction and installation bidding contract from September 2022 to March 2024, when conducting inspection, payment, and final settlement after December 31, 2022, it is not eligible for VAT reduction according to the provisions in Paragraph 1 of Article 1 of Decree No. 15/2022/ND-CP dated January 28, 2022, by the Government.
To safeguard the rights and interests of all parties in implementing the previously signed construction and installation contract, the company may contact the client to agree on adding an annex to the contract in compliance with the regulations.
By: Source: Mai Chi (Government Newspaper)/Translator: LeAnh-Bizic
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