Irregularities in VAT payments REF#8520

24 Jul 2024 | Tax Issue Tackled

Last modified date: 24 Jul 2024

Issue Description

Under the prevailing tax law and regulations, a taxable person is entitled to VAT refund if the purchase is made for businesses purposes with proper VAT invoices. To claim a refund, taxpayers must make sure they fulfill the eligibility criteria according to Prakas 576 on ‘Value Added Tax Refunds’ enacted by the Ministry of Economy and Finance in June 2018.

To submit a VAT refund request, taxpayers must have excess VAT input credit for three or more consecutive months. Taxpayers can submit a request each month if they are exporters or registered as an investment enterprise, that is to say a Qualified Investment Project (QIP). Taxpayers must provide evidence on the amount of input VAT that has been paid.

Taxpayers have to create their request and have to provide supporting documents. After submitting their VAT refund request on the platform, the request will be reviewed by the Department of Administration and General Affairs at the General Department of Taxation.

However, we have learned from our members that the VAT refund to the applier may be denied by GDT, if the supplier fails to remit the collected VAT to GDT.

The current Tax laws do not mandate the taxable entity, that is applying for a VAT refund, to confirm whether the supplier has appropriately paid the collected VAT.

Impact on business

This creates a confidence issue for the Tax authorities and, more broadly, for the Cambodian market. Indeed, by creating a new implicit condition, it strengthens the unpredictability of the tax regulations and opens the door to the practice of always adding new requirements, even though they are not required by law. Plus, in this particular case, the taxpayer should not be responsible for policing its suppliers. This also strengthens the distrust taxpayers have in the Tax authorities because it implies they cannot do their job properly. This creates a situation of distrust where companies are unwilling to invest more in Cambodia. After all, the VAT refund tool is one of the best incentives provided by the Government to attract investment.

Recommendation

  • Put in place a system that promptly notifies a taxable person if the suppliers fail to remit the collected VAT to the GDT on a timely manner.

The private sector recognizes the challenges faced by the GDT in addressing widespread VAT fraud and the issue of fake invoice suppliers. But this should not be to the detriment of compliant taxpayers that are willing to invest more into the country. If the GDT is willing to establish the pre-condition of receiving the collected VAT from the supplier, a notification should be addressed to the person claiming a VAT refund. This would allow him the latter to stress the supplier to remit the VAT to the Tax authorities.

Dialogue with

Royal government of Cambodia

Initiative from Eurocham: This issue has been raised by the Tax Committee and published in the Advocacy Compass on 24th of July, 2024.

No response from the Royal Government of Cambodia

Contributors

Dr. Antoine Fontaine

ANANT LAW FIRM