VAT refunds cause serious difficulties, partly due to the actions of the tax authorities themselves.
According to the law, a taxpayer has the right to a VAT refund in the case of constant exports, confirmation by banks of such exports by receiving foreign currency proceeds, confirmation of the crossing of the border of goods by customs authorities, and the absence of violations by direct suppliers. However, despite the presence of such facts, exporters do not always receive a refund of excess VAT.
600 billion tenge is the amount of VAT refunds suspended by tax authorities, according to the head of state, announced at an extended government meeting on February 7, 2024. This situation actually deprives businesses of working capital. It turns out that the state's budget problems are being solved at the expense of businesses. There are also cases when, due to a refusal or delay in VAT refunds, taxpayers, having not received the funds due from the state under the law, are forced to take out loans from banks and pay significant interest on them.
The courts, guided by the APPC, often make decisions in favor of businesses. At the same time, tax authorities not only suspend VAT refunds, but also continue to challenge court decisions, even when their positions are clearly losing. As a result, companies are forced to engage in litigation, demanding that notifications of tax audit results be declared illegal and obliging tax authorities to refund VAT.
In practice, a VAT refund dispute takes more than a year. And even when litigation reaches the finish line, the final ruling of the Supreme Court is often not the end of the issue of the actual VAT refund. Tax authorities, even after losing a case, create formal barriers to the actual VAT refund and interpret court decisions in their own way.
In a number of decisions, courts issue decisions with the wording: "Complete the previously initiated administrative procedure (tax audit for VAT refund) taking into account the legal position of the court." In fact, this means protecting the interests of the business, since the court points out all the mistakes of the state body. However, tax authorities interpret this as an opportunity to conduct a new audit "from scratch", which creates the risk of identifying new grounds for refusing to refund VAT and delays the refund process.
As a result, a vicious circle arises: instead of a prompt VAT refund, as stipulated by the provisions of the Tax Code, businesses face new barriers in the form of repeated audits.
As a result, at the stage of executing court decisions, businesses have to prove and justify to tax authorities how they should implement court decisions, which again entails delays in the VAT refund process. In some cases, it is again necessary to resort to the help of the courts as part of monitoring the execution of court decisions.
Some state revenue departments (SRDs) even suggest that companies that have won court cases withdraw their claims and complaints, as well as cease operations in the region.
In the current situation, the question arises: if the VAT refund mechanism does not work well or in some cases does not work at all, is it time to review the procedure itself? It may be more appropriate to provide for offsetting VAT against other taxes, such as corporate income tax, which would reduce the burden on businesses.
Ultimately, if court decisions are not enforced, this will lead to a devaluation of the work of judges and disappointment of investors in Kazakhstan's tax policy. And for a country seeking to attract investment, this could have serious economic consequences.