18-7-2023 (BANGKOK) The Revenue Department is set to introduce a value-added tax (VAT) reverse charge scheme for the scrap metal industry by January 2024 to reduce the risk of refund fraud, according to Director-General Lavaron Sangsnit. The scheme aims to eliminate the use of fake VAT invoices that are commonly issued by scrap metal businesses to claim tax refunds from the department.
Mr. Lavaron said that the department would impose stricter measures for the inspection of tax refunds, which would cover all businesses. Many countries, particularly Organisation for Economic Co-operation and Development members that are also part of the European Union, use the VAT reverse charge mechanism to combat VAT fraud in sectors 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 requires 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. This will shift the VAT liability from scrap traders to iron smelters, removing the possibility for dishonest scrap traders to disappear with the VAT they collected from their customers without remitting it to the department.
The introduction of the scheme will also help facilitate the inspection process, as there are a limited number of iron smelters. VAT is a significant 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.
