The vat return system in transactions subject to reduced rate, encountered problems and solution proposals: A sample application

Based on taxing the end consumer, the VAT is a type of expenditure tax. Therefore, although the taxpayers of VAT are persons delivering goods or performing services, the actual payers are persons finally using the goods or services. However, sometimes the tax is borne by the sellers of the goods or services without being reflected to the final consumer. The most evident examples of this situation are deliveries subject to reduced rates. In such deliveries the taxpayers can compensate some of their VAT burden through a tax relief. Usually 18% VAT is paid in purchase of goods or services in transactions subject to reduced rate. However, the delivery of such goods or the performance of such services are subject to the reduced rate (8% or 1%). Therefore, the difference between the general rate and the reduced rate cannot be compensated through a tax relief mechanism. Such amounts that cannot be compensated through a tax relief mechanism are refunded to the taxpayers upon their request, pursuant to the VAT Law. However, the VAT refund system of businesses subject to reduced rate has three basic problems. These are problems arising from the gaps in the legislation, problems encountered in the VAT refund control reports and problems caused by unlawful arrangements. The main purpose of this study is to set forth solution proposals for the problems encountered in the VAT refund system by businesses subject to reduced rate to ensure that the refund process is more effective and faster. In this context, basic information and some particular features of transactions subject to VAT and reduced rate were explained. Then, the problems encountered in the refund process and solution proposals for such problems, taking into consideration application examples of the Tax Administration in the context of the VAT General Application Communique, were set forth. Last, attempt was made to clarify the issue by examining a CPA (Sworn Public Accountant) VAT Refund Certification Report that could set an example for a VAT refund arising from transactions subject to reduced rate. Keywords: VAT, Reduced Rate, VAT Refund, VAT Refund Risk Analysis System, VAT Refund Control Report, VAT Burden.