The Circular No. 120 dated December 12, 2003 by the Ministry of Finance, stipulated that raw materials or just preliminarily treated coffee would bear the tax rate of 5 per cent, while processed products would be imposed with a tax of 10 per cent.
The two-tax system, though, has caused some issues, said Vicofa, indicating authorities from different provinces impose different tax regiments.
There is also confusion over the classification of coffee for export, according to the association. Authorities often determine whether coffee is earmarked for export or the domestic market based on the VAT. As a result, one million out of 1.5 million sacks of coffee exported to ten European ports were found to be of low quality by the International Coffee Organization.
A big coffee processor in central highlands Dak Lak province said that coffee exporters would get tax refunds on coffee exports, no matter whether the tax rate was 5 per cent or 10 per cent. However, the tax rate of 10 per cent will not encourage enterprises to collect and process high-quality coffee to export.
A businessman said that as the coffee price was now relatively high, the imposition of 10 per cent in VAT tax would put difficulties on enterprises. As it always takes time to get tax refunds, enterprises will have to borrow money from banks to fulfill contracts, and to pay interest on the loans, which will be bigger as enterprises have to pay higher VAT tax.
He said that the 10 per cent VAT tax proves to be contrary to the policy encouraging high-quality processed product export. Currently, in order to encourage exports, the export tax rate on exported coffee is 0 per cent.
Vicofa argued that since the country wants to encourage the export of high quality processed coffee and most of Vietnam’s exports are unprocessed, it should impose a 5 per cent VAT across the board.
A 5 per cent VAT on all coffee products will promote coffee exports and help the country regain its prestige on the global market as a quality producer, said the association.
Among agricultural items, coffee was listed as the largest forex earner for Vietnam in the first five months of this year with export value of nearly US$1.1 billion, accounting for 42 per cent of total agricultural export value and doubling the revenue of rice exports.
Vietnam, the world’s second largest coffee producer, is likely to export 900,000 tons of coffee during the 2006-2007 crop year ending next September, fetching USUS$1.5 billion, the highest earning from the commodity so far. The earning will be USUS$400 million higher than the previous crop.