Thailand: VAT reverse charge scheme in the pipeline

The Revenue Department is planning to launch a value-added tax (VAT) reverse charge scheme in the scrap metal industry to reduce the risk of refund fraud by January 2024, says director-general Lavaron Sangsnit.

He said more than half of the fake VAT invoices were issued by scrap metal businesses to be used as evidence for tax refunds from the department and are deemed to be highly unacceptable.

As a result, the department is imposing stricter measures for the inspection of tax refunds, which would cover all businesses.

Mr Lavaron said many countries, particularly Organisation for Economic Co-operation and Development states that are also member of the European Union, are using the VAT reverse charge mechanism as a means to combat VAT fraud, in particular sectors that are vulnerable to organised fraud such as trading in mobile phones, integrated circuit devices, tablets and laptops, scrap materials and waste.

The VAT reverse charge scheme, which the department plans to issue a decree for by January next year, will require iron smelter businesses, the ultimate buyer in the transaction chain of the scrap trading ecosystem, to issue both purchase and sales invoices and submit VAT to the department.

In the standard VAT process, a business must issue a tax invoice when it supplies certain goods or services to a customer plus VAT at the rate of 7% and remit it to the department, called sales tax.

On the other hand, a tax invoice which the buyer receives is called purchase tax. In the case of a VAT-registered buyer, the buyer has the right to deduct in accordance with the general provisions for the VAT the buyer calculates and reports. If the purchase tax is greater than the sales tax, the business can then claim the deduction or refund of VAT.

Shifting the VAT liability from scrap traders to iron smelters removes the possibility for dishonest scrap traders to disappear with the VAT that they collected from their customers without remitting it to the department. Furthermore, this also helps facilitate the inspection process as there are a limited number of iron smelters.

VAT is an important source of revenue for both the department and the government.

In fiscal 2022, the department collected taxes worth 2.16 trillion baht, of which 930 billion baht comes from VAT, accounting for 42.9% of the department’s revenue.

For the first eight months of fiscal 2023 (October 2022 to May 2023), the department collected 1.304 trillion baht, of which 613 billion baht was VAT.

Source: https://www.bangkokpost.com/business/general/2613085/vat-reverse-charge-scheme-in-the-pipeline