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Taxation textbook chapter 1 2

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PREFACE Tax administration has been taught in the Academy of Finance of Vietnam for many years However, this subject has only been taught in Vietnamese so far In order to improve the English ability of the Academy’s students, series of solutions have been suggested andor applied of which using English in teaching at the Academy is one of the key solutions There is a lot of work to do for teaching a new subject of which preparing learning materials is very important Among other learning material. PREFACE Tax administration has been taught in the Academy of Finance of Vietnam for many years However, this subject has only been taught in Vietnamese so far In order to improve the English ability of the Academy’s students, series of solutions have been suggested and/or applied of which using English in teaching at the Academy is one of the key solutions There is a lot of work to for teaching a new subject of which preparing learning materials is very important Among other learning materials, a textbook on taxation is a must-do thing That is the reason for the birth of this book for the first time of publication in 2013 After years of having been used for teaching and studying, the book need to be modified because some of its parts have become out of date resulting from many changes in the Vietnam’s tax laws as well as some newly emerged international tax issues in the context of the digital economy and the fourth industrial revolution For the second edition in 2019, we try to update all the key changes in the Vietnam’s tax laws and the modern uses in tax administration We also make some changes to the exercises and supplement some more exercises The aims of this book are to provide systematic understanding of tax theory, crucial contents and issues of tax laws, and tax administration in Vietnam This book is designed for students who learn English in economics as their first university degree or students majoring in economics with upper-intermediate level English, and also for those who want to read about tax in English for their study, research or work To make a textbook is always a dull work Moreover, tax is a very complicated subject Therefore, it is inevitable to avoid errors in this book We highly appreciate suggestions from scientists, colleagues and readers to perfect this work ACKNOWLEGEMENTS We at first wish to thank Associate Prof PhD Nguyen Trong Co, Chairman of the Academy of Finance and Prof PhD Ngo The Chi, Ex-Chairman of the Academy of Finance for their encouragement and special help We owe a special thanks to the following colleagues for their valuable comments and suggestions: Pham Van Lien, Associate Prof, PhD, Ex-Vice Chairman of the Academy of Finance; Dang Duc Son, Associate Prof, PhD, Head of Department of Accounting, School of Economics, National University of Vietnam in Hanoi; Do Van Anh, MBA, Head of Department of Auditing, Hanoi University; Vuong Thi Thu Hien, Prof, PhD, Vice head of Department of Taxation, Faculty of Taxation and Customs, Academy of Finance; Mai Ngoc Anh, Prof, PhD, Dean of Faculty of Accounting, Academy of Finance Special thanks also to our colleagues in the Department of Scientific Management for their efficient coordination and their help in editing and publishing this book Many thanks also to our colleagues in the Faculty of Taxation and Customs, Academy of Finance for their encouragement and good advice THE AUTHORS Le Xuan Truong, Associate Professor, Doctor of Philosophy in Economics, BA in English, Dean of Faculty of Taxation and Customs, Academy of Finance of Vietnam: Co-chief Author, writer of chapter and 5, co-writer of chapter and Nguyen Thi Thanh Hoai, Doctor of Philosophy in Economics, Vice Dean of Faculty of Taxation and Customs, Head of Department of Taxation, Academy of Finance of Vietnam: Co-chief Author, writer of chapter and 8, co-writer of chapter Nguyen Van Hieu, Associate Professor, Doctor of Philosophy in Economics, MBA (Aus), Head of Department of Finance, School of Economics, National University in Hanoi: Writer of chapter Ly Phuong Duyen, Associate Professor, Doctor of Philosophy in Economics, Lecturer of Faculty of Taxation and Customs, Academy of Finance of Vietnam: Writer of chapter Truong Thi Minh Hanh, MA (Aus), Vice Head of Department of Financial English, Faculty of Foreign languages, Academy of Finance of Vietnam, co-writer of chapter and Truong Ba Tuan, MBA (Aus), Vice Director of National Institute for Finance: Co writer of chapter CHAPTER AN OVERVIEW OF TAXATION LEARNING OBJECTIVES After reading this chapter, you should be able to: Define terms related to taxes and tax policy Distinguish tax revenues from other revenues of the government Give reasons why we have taxes Explain the principles of taxation Describe the major types of taxes Describe the standards of a modern tax system Describe the basic elements of a tax law 1.1 CONCEPTS AND CHARACTERISTICS OF TAX To many people, tax is considered to be something they have to pay to the government but for which they receive nothing directly in return So tax is just understood as whatever (money or assets) a person or an entity has to pay compulsorily to the government in order to finance the government’s activities This perception derives from the fact that people only see the act of tax payment from the citizens to the government both in cash and by other assets such as rice or wheat etc According to the Mc Milan Dictionary of Accounting, “Taxes are compulsory levies made by public authorities for which nothing is received directly in return They are used in part to provide public goods”.1 The Longman Dictionary of Business English defines tax as “A payment of money legally demanded by a government authority to meet public expenses”.2 In our opinion, tax is a part of income which is legally stipulated and compulsorily paid by citizens to the government in order to finance the public expenditures From the concepts of tax mentioned above, the following characteristics can be seen: Firstly, tax is a compulsory payment This compulsory nature is attached to the power of the government The way to tax is very different from the way to get many other revenues of the government which can be got voluntarily such as the sale of government’s properties, loans, grants or donations, etc If taxes were paid voluntarily, very few people would pay because they would get no direct benefits in exchange for paying taxes But unlike fines, taxes are not paid as punishment for breaking a law or rule The payment of taxes is not accompanied with the law violations but the apparent responsibility of the citizens to the state Secondly, tax is an indirect compensation payment Taxpayers get nothing directly in exchange for paying taxes Although taxpayers can eventually benefit from the public goods and services provided by the government such as security, national defense and roads They get no immediate benefits in return for their tax payment R.H Parker (2002): Mc Milan Dictionary of Accounting, second edition, page 279 J H Adam: Longman Dictionary of Business English, page 433 They cannot demand the government to provide public services before they pay taxes or right after they pay taxes Also, the public services and the amount of taxes are not positively related 1.2 THE ROLES OF TAX 1.2.1 MAIN REVENUES OF THE GOVERNMENT’S BUDGET This is the primary role of tax In order to get the money for public expenditures as well as to finance for the governments’ activities, the governments look for many revenue sources such as the sale of the state’s property (natural resources, for example), fees, voluntary donations, loans, etc., among which tax is the most important source Tax revenue is the core part of the government’s budget because tax is compulsory and made by a wide range of payers whose incomes are produced by their economic activities Human beings cannot exist without economic activities which people to earn a living such as farming, fishing, mining, tourism and manufacturing Thus, as long as men exist, the sources of tax are available Tax has an important advantage concerning to its compulsoriness With voluntary donation, governments cannot be sure of how much they can get Loans are not only dependent on the willingness of the lender but also must be repaid at maturity date With its compulsoriness, tax revenue will be firmly paid to the government’s budget The wide range of payers makes tax superior to some other budget’s sources While natural resources and some other budget’s sources are limited, tax is endless Even though in some Gulf countries where crude oil, but not tax, is the main part of the budget of the governments, these governments cannot rely forever on crude oil since it may be abundant but not unlimited Crude oil one day will become exhausted Fees can only apply to non-pure public goods and services such as roads and bridges In order to bring into full play of this tax’s role, the government has to deliberately consider the elements of each tax among which tax base and rate count most If the base is not clear and sufficient, it can be eroded, and of course, the tax amount paid to the budget reduces Some may think that the higher the tax rate is, the higher the tax revenue will flow into the state budget Unfortunately, this is not always true To some extent, as the tax rate increases (up to a certain level), the tax revenue brought in goes up When the tax rate continues to rise, the tax amount brought in falls This law is known as Laffer curve which was named after an American economist who drew the curve to illustrate his concept while he argued against President Gerald Ford’s tax increase in 1974 although Laffer has never claimed to have invented the concept, explaining that he has learned it from Ibn Khaldun and John Maynard Keynes Laffer curve can be seen as follows: Tax revenue 100% Tax rate The importance of tax to the state budget can be seen in the following example: EXAMPLE 1.1: State budget revenue structures of EU and OECD (1998) Group of Tax Revenues from compulsory countries revenue social contributions OECD 70.6% 28.2% 1.2% 100% EU 65.2% 32.7% 2.1% 100% Others Total [Source: Herve Dutel, The socio-economic context of public finance, Lecture of FSP, Hanoi 2003] The above example shows that in 1998 tax revenue percentage is the largest part of the total budget revenue of OECD and EU countries, reaching nearly three quarter of the total state budget 1.2.2 MACRO ECONOMIC ACTIVITIES ADJUSTMENT As tax affects the income of enterprises and citizens, it can impact the motive of labor and investment; therefore, it can adjust some major factors of the economy such as the supply of labor, the demand of labor and capital, and the aggregate demand and supply of the economy as a whole We will discuss how tax can help adjust the economic activities in the following section Firstly, tax helps to regulate the economic cycle As many economists have proven, the global economy as well as each economy all over the world goes up and down cyclically through four stages including recession, crisis, recovery, and prosperity Crisis, of course, does harm to the development of the economy but too fast economic growth is also harmful to the development of the economy Too fast economic growth may cause some unbalances to the normal trend For example, too fast economic growth may cause lack of the labor supply or the exhaust of the natural resources and so on Therefore, to maintain an appropriate economic growth is of great significance to every economy One of the functions of the government is to make the economy develop stably In order to fulfill this function, the government uses some tools such as public expenditure policy, monetary policy, and tax policy How can tax help to regulate economic cycle? This is a very complicated issue but here in this basic chapter of a textbook on taxation, we introduce two of the simplest ways as below: (i) If the economy shows a sign of too fast growing, the government can increase the corporate income tax An increase in the corporate income tax can force firms to charge a higher price in order to shift tax burden to consumers if possible or bear the tax themselves Thus the rise in the income tax may cause the rise in commodities’ price, which may discourage consumer spending and firm’s production As a result, businesses will see their profit shrink and investment reduce (ii) If there are signs of economic recession, tax cuts would be the government’s choice The effect of this choice may be to create a reversal of the economic situation This means tax reduction may stimulate firms to invest more or encourage consumers to spend as firms have more disposal income to invest and to raise their workers’ income Another way to spur the economy is to refund taxes, may have similar impact as tax reduction on the development of the economy EXAMPLE 1.2: In 2007, when the US economy had some signs of recession, President Bush decided to apply an income tax refund program to all income taxpayers The aim of this program is to leave the people with more income to spend which is believed to stimulate the growth of the economy This program helped Bush’s Administration refunded over 370 billion US dollars In accompany with other solutions such as the rediscount rate reduction made by the Federal Reserve; this measure to some extent did spur the US economy to recover in the following years Secondly, tax helps to balance the labor market and control inflation Similar to the way it regulates the economic cycle, an increase or decrease in taxes can help to control inflation and to lower the unemployment However, the use of tax to achieve this target is similar to the use of a two edge sword Misusage of tax could even make inflation and unemployment worse EXAMPLE 1.3: In the 1960s, the US economy was in recession with high inflation In 1963 and 1964, all consultants of President Kennedy advised him to take many solutions including income tax and corporate tax cut But regrettably, no reduction in taxes was done Some years later, this advice was applied but it was too late and inflation continued to rise Source: Paul A Samuelson and William D Nordhaus: Economics Thirdly, tax helps to stimulate the economy to develop in accordance with government’s directions By the use of tax rates and tax incentives, the government stimulates businesses to invest in certain areas of the country or in some fields of the industry or to constrain investment in certain fields All of these help to efficiently use the limited resources of a country and achieve the government’s set aims EXAMPLE 1.4: In the 1950’s in order to spur the development of the industries, Japanese government applied an accelerated depreciation rate to companies whose machinery was newly invested or using new technology The accelerated rate was up to 50 percent in the first year of usage of the machines This solution strongly affected the investment in new machine and technology of many firms in Japan and it was one of the reasons explaining why the industry of Japan could sharply develop in the following two decades after that Fourthly, tax protects the domestic production The protection is done by imposing high import duty High import duty pushes the price of imported goods higher Because of the high price, the imported goods are in difficulty in competition with the similar domestic goods However, in the context of the global integration where the import duty rate is reduced considerably even to zero, the domestic production protection role of tax is apparently lessened Fifthly, tax corrects problems caused by negative externalities Market system does not always work as well as we might hope One of the weaknesses of the market economy is that it causes negative externalities such as water and air pollution This is called market failure By applying environmental tax on the pollutants a firms puts into the air and water, the government can correct this market failure “Pollution problem arise because producers have to pay only part of the real costs of making their products Producers must pay for their raw materials They must also pay for labor, the machines they use in production and energy However, producers may put tons of waste into the air, or into rivers, lakes, or oceans at little cost to themselves In doing so, they pollute our water and air, making both less valuable to society the VAT rate of 10%) or at the rate of 1% (for goods and services subject to the VAT rate of 5%) of before-VAT turnover The VAT paid to tax office where the production unit locates shall be subtracted from the VAT amount payable at head office Where the VAT amount paid as percentage of 2% or 1% as mentioned above is greater than the amount of VAT payable by the tax payer in the tax month, the VAT amount payable to each locality is allocated based on turnover - Declaration of value-added tax for agency activities:Taxpayers that are sale agents for goods or services liable to VAT have to declare tax on turnover from entrusted goods sale and their agent commissions If establishments acting as agents selling goods at prices fixed by the goods owners for commission (except transactions which are exempt from declaring and paying VAT), they have to declare and pay tax only on their agent commissions  Tax declaration by import or export businesses undertaking entrusted import of goods subject to VAT: When delivering the goods, establishments that undertake entrusted import of goods subject to VAT are not required to declare VAT on goods they have imported under entrustment but have to separately declare invoices made for these goods which have been delivered to import-entrusting parties in the list of value added invoices for goods sold and file them to tax offices in charge of them  Where businesses that produce or trade in both taxable items and exempt items but fail to separately account the creditable input VAT, the creditable input VAT shall be calculated according to the proportion (%) of the turnover from the taxable items to total turnover from the sale of goods and services in the period This proportion is defined temporarily every month and officially defined at the end of the tax year  For businesses that sell taxable items at prices prescribed by the government and enjoy price and freight subsidies provided by the government, when selling such goods, they have to calculate the output tax so as to declare and pay VAT on goods at the government-prescribed prices Price and freight subsidies provided from the state budget are not subject to VAT and are included in their incomes for corporate income tax liability  Businesses dealing in assorted goods and services liable to different VAT rates have to declare separately each tax rate prescribed for each kind of goods or service If they fail to determine tax separately for each tax rate, they have to calculate and pay tax at the highest tax rate applicable to the goods or services which they deal in  Where businesses trading in gold, silver and gems and businesses applying direct method and the added value is negative, the negative added value shall be carried forward and cleared against the arising added value of the following month for calculating VAT amounts payable but the negative added value of the tax finalization year must not be carried forward to the subsequent year b Declaration for imported goods Businesses and importers that import goods subject to VAT have to make and file VAT declarations upon each importation at the time of import tax declaration to the customs offices 2.2.8.2 Tax payment a For production and trade establishments - Tax payment deadlines Taxpayers are obliged to pay taxes fully and on time into the state budget If taxpayers conduct tax calculation, the tax must be paid by the last day of the deadline for submitting of tax returns If tax offices conduct tax calculation or tax assessment, the tax payment deadline is stated in notices of tax offices - Tax payment places and procedures Taxpayers pay taxes into the state budget by the following ways: directly at the State Treasury office or at tax offices that receive tax declarations or through organizations authorized by tax administration agencies to collect taxes or through commercial banks or other credit institutions and service organizations defined by law Taxpayers may pay taxes in cash or by account transfer If taxpayers directly come to the State Treasury office to pay taxes in cash, the State Treasury shall give certification of paid tax amounts in tax receipts If taxpayers pay taxes in cash at tax offices, banks, credit institutions or to organizations or individuals authorized by tax offices to collect taxes, upon receiving tax amounts, organizations or individuals shall issue to taxpayers tax receipts For taxpayers paying taxes by account transfer, banks or credit institutions that deduct and transfer money from taxpayers' accounts into the State Treasury's account shall give certification in taxpayers' tax receipts Banks or credit institutions shall reflect all contents of tax receipts on recourse receipts to be sent to the State Treasury that collects state budget revenues Within eight working hours after receiving tax amounts from taxpayers, taxreceiving agencies or organizations have to remit those tax amounts into the state budget If tax amounts are collected in cash in mountainous, deep-lying or remote areas, islands or areas difficult to access, the time deadline for remittance of collected tax amounts into the state budget is five working days from the date of tax collection - Handling of overpaid tax amounts In a tax period, if businesses have the overpaid tax amounts of the previous period, these tax amounts may be cleared against the tax amounts payable of the subsequent period Taxpayers may deal with overpaid tax amounts by one of the following ways: (i) Offsetting overpaid tax amounts against tax or fine arrears, or clearing overpaid amounts of a tax against amounts payable of another tax (ii) Offsetting overpaid tax amounts against tax amounts payable of the subsequent payment time (iii) Getting overpaid tax amounts refunded if they have no tax or fine arrears - Currency for tax payment Currency for tax payment is Vietnam dong, except cases in which they are permitted by law to pay tax in foreign currencies b For imported goods Businesses and persons that import goods have to pay VAT on imported goods upon each importation The deadline for payment of VAT on imported goods coincides with the deadline for import tax payment 2.2.10 VAT REFUND 2.2.10.1 Cases of VAT refund (1) The monthly or quarterly amount of input VAT which has not been fully deducted from the VAT paid by a business taxpayer adopting the credit method in the period shall be deducted from the VAT incurred in the subsequent period (2) The refunding of VAT on annual goods and services used for investment activities (except circumstances not be eligible for a refund), shall be applicable to a registered business which has recently been incorporated under an investment project and registered to pay VAT by credit method, or an oil well exploration and development project undergoing the investment phase in at least year and has yet progressed to operation If the accumulated value added tax (VAT) on services and goods purchased for investment activities is VND 300 million or higher, the VAT shall be refundable (3) Refund of VAT for investment projects (a) An active business taxpayer which pays VAT by the credit method shall separately declare input VAT on its investment projects currently under the investment phase in the same province where it is based (except for the circumstances not be eligible for a refund and except investment projects that construct houses for sale or rent but without constituting any fixed assets) from the VAT on its ongoing business activities The maximum deductible VAT from the investment projects is equal to the VAT payable on business activities in the period If the remaining deductible VAT is VND 300 million or higher, it shall be refunded If the remaining deductible VAT is smaller than VND 300 million, it shall be carried forward to the next tax period of the project (b) An active business taxpayer which pays VAT by the credit method shall declare, by separate documentation, and offset input VAT on its new investment projects which are under investment and have not applied for neither business nor tax registration in a province different from the location of its head office (except for the circumstances not be eligible for a refund and except investment projects that construct houses for sale or rent without constitution of fixed assets) against the declared VAT on its ongoing business activities The maximum VAT deductible from the investment projects is equal to the VAT payable on business activities in the period VAT on a new investment project shall be refunded if the remaining deductible input VAT on such project is VND 300 million or higher If the remaining deductible input VAT is less than VND 300 million, it shall be carried forward to the next period If the business taxpayer decides to establish project management boards or branches in provinces other than the province where its headquarter bases in to manage one or more projects on its behalf, such project management boards or branches shall submit their own tax declarations and refund claims to local tax authorities with which tax registration is applied provided they have their own legitimate official seals, maintain their own records according to accounting regulations, have bank accounts, have registered for tax and have obtained their own taxpayer identification numbers When an investment project for the incorporation of an enterprise completes the formalities of registration for business and tax, the business that is the main investor of such project shall inform the new enterprise of the amounts of the project’s VAT incurred, VAT refunded and pending VAT refund The new enterprise shall declare and pay tax accordingly (c) In the following cases, a business shall not be eligible for a refund but can carry forward remaining deductible VAT on its investment project to the subsequent period: - The charter capital of the investment project of the business has not been fully contributed as registered as per the laws - An investment project is carried out by a business that undertakes conditional trade(s) though not satisfying business conditions as per the Investment Law; in other words, such investment project is run by a business that engages in though not licensed to perform conditional trade(s); by a business that engages in though not certified qualified to perform conditional trade(s); by a business that engages in though not permitted by a competent authority to perform conditional trade(s); or by a business that engages in but does not meet conditions to perform conditional trade(s) though not required by the laws on investment to be permitted or certified thereof in writing - An investment project is carried out by a business that undertake conditional trade(s) but fails to sustain business conditions during its operations; in other words, such investment projects are run by a business that engages in conditional trade(s) but has its relevant license(s) revoked during its operations; by a business whose certificate(s) of eligibility for conditional trade(s) is (are) revoked; by a business that has the written permission revoked by a competent authority for conditional trade(s); or by a business that fails conditions to undertake conditional trade(s) as per the laws on investment In this case, the business shall be ineligible for the refund of VAT upon the revocation of one of the said documents or upon being exposed by competent government authorities as having failed conditions for conditional trades - The value of natural resources and/or minerals plus the energy cost of an investment project for extraction of natural resources and minerals which has been licensed since July 01, 2016 or an investment project for production of goods makes up 51% of its prime cost or above (4) Refund of tax on exported goods and services A business that has an amount of remaining deductible input VAT of at least VND 300 million on its exported goods and services in a month (if declaring the tax every month) or in a quarter (if declaring the tax every quarter) shall be given a refund of monthly or quarterly VAT; however, the remaining deductible input VAT of less than VND 300 million in a month or quarter shall be carried forward to the subsequent month or quarter (5) A business that pays the value added tax by the credit method shall receive a refund of overpaid VAT or of remaining deductible input VAT upon its transfer, conversion, merger, consolidation, division, dissolution, bankruptcy or shutdown (6) Projects and programs financed by grant ODA, grant aids or humanitarian aids shall be eligible for VAT refund (a) For the projects financed by grant ODA: Project owners or main contractors or organizations that foreign sponsors designate to manage the projects shall receive a refund of VAT paid on goods and services acquired in Vietnam to serve the projects (b) VAT paid on goods and services shall be refunded to Vietnam-based organizations spending foreign entities’ humanitarian aids on such goods and services for projects and programs that utilize grant aids and humanitarian aids (7) Entities granted diplomatic immunities and privileges as per relevant laws shall receive a refund of VAT paid, according to the VAT invoice or the receipt stating the VAT- included price, on the goods and services that they purchase in Vietnam for consumption (8) Foreigners and Vietnamese expatriates holding passports or immigration papers issued by competent foreign authorities shall be receive refunds of tax on the goods that they purchase in Vietnam and carry upon departure (9) Tax refund for the businesses shall be at the discretion of competent authorities as per the laws and according to the cases of value added tax refund as defined in international treaties that the Socialist Republic of Vietnam engages in 2.2.10.2 Responsibilities of parties relating to VAT refund a Responsibilities of VAT refund beneficiary - To make tax refund dossiers and send them to tax offices To make accurate and truthful declaration in tax refund dossiers and to take responsibility under law for the declared figures - Where their dossiers are unclear or incomplete, to supply supplementary documents or give explanations as requested by tax offices - To fully keep at the establishments other documents related to tax refund and tax credit; to fully supply invoices, vouchers and related documents used as a basis for the determination of the refunded VAT amounts when tax offices carry out tax refund inspections at the establishments b Tax offices’ responsibilities in tax refund - To collect tax refund dossiers from taxpayers - To examine tax refund dossiers at the tax offices, classify the subjects eligible for tax refund so as to apply appropriate tax refund procedures and ensure strict management of tax refund - To notify in writing and return the dossiers to the businesses not eligible for tax refund - To check the figures and determine the refundable tax amounts of taxpayers eligible for tax refund - To issue decisions to refund tax to taxpayers eligible for tax refund - To examine and audit the tax refund at the establishments when detecting doubtful signs in the dossiers or taxpayers’ violations of the tax law c Responsibilities of State Treasuries State treasuries of provinces and centrally run cities have to refund VAT to various taxpayers within three days after receiving according the tax refund decisions CHAPTER REVIEW SUMMARY 1) VAT is a sale tax, charged as a percentage of the added value of a commodity as it changes hands from manufacturer to wholesaler, retailer and consumer 2) Under Vietnam law, VAT is levied on goods and services used for production, business and consumption in Vietnam (including goods and services purchased from organizations and individuals abroad), except for some transactions which are exempt from declaring and paying VAT and several exempt items prescribed by law 3) The base of VAT is called base price In principle, the base price is price exclusive of VAT or in other words before-VAT price 4) VAT rates currently in Vietnam are 0%, 5% and 10% The rate 0% is applicable to exported goods and services The standard rate is 10% 5) There are two methods of calculation VAT payable: credit method and direct method Under the credit method, in order to determine VAT payable, we need to ascertain deductible input tax and output tax Under the direct method, in order to determine VAT payable, we need to define added value of goods and services In turn, added value can be determined by turnover of sold goods or provided services and cost of sold goods or provided services In some special cases, added value is ascertained by an added value rate stipulated by Ministry of Finance 6) In principle, VAT declaration in Vietnam is a self-assessment system The taxpayers calculates themselves the tax amount payable, files tax returns and pay tax at the due time stated by law 7) There are some cases of VAT refund Most of these cases are related to businesses applying credit method Some special cases are applicable to ODA projects and humanitarian aid KEY TERMS Agency activities Internal transfer orders Annual finalization declaration Non- taxable goods and services Before-VAT price Output tax Credit method Outstanding tax amounts Creditable input tax Overpaid tax amounts Deductible input tax State-prescribed prices Dependent cost-accounting establishments Direct method Discounted sale prices Taxable goods and services Dossier Underpaid tax amounts Ex-warehousing-cum-internal transport bills Value added invoice Normal invoice VAT refund ECONOMIC CONCEPTS 1) Point out characteristics of VAT 2) State goods and services subject to VAT in Vietnam 3) Who is liable to pay VAT in Vietnam? 4) What is the base of VAT in Vietnam? 5) How is the base price defined in principle,? 6) How is the base price of imported goods determined? 7) State tax rates of VAT currently in Vietnam 8) What is the main content of credit method? Is all input tax amounts creditable? 9) What is the main content of direct method? 10) State procedures for VAT declaration and payment in Vietnam 11) What is the deadline for VAT declaration and payment in Vietnam? 12) State cases of VAT refund in Vietnam DISCUSSION QUESTIONS 1) Discuss the reasons for VAT-exempt goods and services 2) Why doesn’t VAT undertake social fair? 3) Why we impose VAT on imported goods? 4) What are the similarities and differences between 0% rate and non-taxable goods and services (exemption)? Point out the significance of 0% rate? 5) What are the similarities and differences between taxable, non-taxable goods and services (exemption) and exemption from declaring and paying VAT transaction? 6) What are the strong points of credit method? 7) What are strong points and weaknesses of direct method? 8) Point out the significance of VAT refund EXERCISES Exercise We have data of a trade establishment in a month as follows:  At the beginning of the month, 10,000 units of product X are left in stock The before-VAT price of these products is VND50,000 per unit  Purchase in the month: - Purchase from SA Co 5,000 units with before-VAT price written on value added invoice VND55,000 per unit - Purchase from a business household 3,000 units with price written on goods sale invoice VND56,000 per unit - Purchase from AS Co 2,000 units with before-VAT price VND55,000 per unit The value added invoice is not written the seller’s name  Sale in the month: 15,000 units of product X with before-VAT price VND60,000 per unit  The creditable input tax of other purchased goods and services is VND3,000,000 Required: Calculate VAT payable for the month Given that: - VAT rate: 10%; - The establishment applies credit method; - Bank payments are used to the above purchase Exercise You are provided with the following information relating to ABC company, for the quarter ended 30 April year N: Sales: - 10% supplies (excluding VAT) VND 200,000,000 - Zero - rated supplies VND 150,000,000 - Exempt supplies VND 50,000,000 Input VAT had been paid - For production 10% supplies VND 7,000,000 - For production Zero - rated supplies VND 4,000,000 - For production Exempt supplies VND3,000,000 - General overhead VND4,000,000 Required: Compute the VAT payable for the quarter ended 30 April year N Given that: - ABC applies credit method; - Zero - rated supplies are supported with sufficient documents as prescribed by law; - All purchases were supported with legitimate invoices; - Bank payments are used to the above purchase; - The general overhead cannot be directly attributed to any of the listed supplies Exercise A Vietnamese join stock company, which engages in garment production This company applies credit method, had the following transactions during the tax period for which creditable input VAT is questioned All amounts are stated exclusive of VAT at 10% Purchased goods with invoiced value of VND 200 million During transportation to the company warehouse, due to an accident, one third inventory was damaged The good were not insured, no one compensated for the damage The purchased goods were supported with legitimate invoice and with Bank payment Purchased a 5-seater car at a value of VND 2,000 million The purchase car was supported with legitimate invoice and with Bank payment Purchased goods with invoiced value of VND 30 million The purchase goods were supported with VAT invoice, but the seller’s address was not written and with Bank payment Received an invoice for 2,000 million for the construction of a canteen for employees working in the company’s factory in the industrial park The invoice is legitimate and with Bank payment Purchased goods with invoiced value of VND 50 million The purchase goods were supported with VAT legitimate invoice, and with cash payment Purchased goods with invoiced value of VND 15 million The purchase goods were supported with VAT legitimate invoice, and with cash payment Required: For each of the above items, calculate the creditable and/or uncreditable input VAT and explain the reason for your treatment Exercise We have data in the month of a company as follows: - Sell 12,000 units of product A in domestic market with before-VAT price of VND30,000 per unit No VAT output - Sell 10,000 units of product B in a domestic market with before-VAT price of VND20,000 per unit 10% rate - Export 2,000 units B with before-VAT price of VND30,000 per unit Exported goods are eligible for creditable input tax - Deliver to a sale agent selling goods at prices fixed by the goods owner for commission 2,000 units of product B with before-VAT price of VND30,000 per unit, using the delivery bills for goods to sale agency together with the internal transfer orders The sale agent make list of sold goods and send to the company report that they have sold 1,000 units of product B - The input VAT from purchased goods and services in the month is VND20,000,000 The company cannot separately account the input tax for every activity Required 1: Compute VAT payable for the month and fill in VAT declaration form Given that, product A is exempt from VAT, product B is a taxable item with VAT rate of 10% The company applies credit method Exported goods are supported with sufficient documents as prescribed by law All purchases in the month were supported with legitimate invoices Required 2: Calculate VAT payable for the month, suppose that 12,000 units of product A are exported instead of selling in domestic, other data remains unchanged Exercise We have data in a month of a company in Hanoi:  Purchase in the month: - 3,000 units with before-VAT price of VND260,000 per unit - 100 units with price written on normal invoice of VND27,500,000  Selling in the month: - 10,000 units with before-VAT price of VND300,000 per unit - Using ex-warehousing-cum-internal transport bills together with the internal transfer orders to deliver 500 units to a dependent cost-accounting establishment based in Hanoi The dependent cost-accounting establishment reports that the sold quantity is 400 units with before-VAT price of VND310,000 per unit - Sale of mobile selling in Haiphong is as follows: 3,500 units with before-VAT price of VND310,000 per unit The company has declared and paid VAT in Haiphong - The creditable input VAT of other purchased goods and services is VND5,000,000 Required: Calculate VAT payable for the month in Hanoi and in Haiphong, given that: - The establishment applies credit method; - Tax rates: 10%; - Bank payments are used to the above purchase Exercise A corporation engaging in wooden furniture production has the following data for a tax month: - Export sales: 100 sets of table and chairs with FOB price of VND400 million - Sales to companies in EPZs: 50 sets of table and chairs with price at the border gate of EPZs of VND250 million - Domestic sales (at before VAT price): VND600 million - Total input VAT shown on value added invoices: VND80 million of which VND10 million belonged to a damaged load of wood caused by fire - Bank payment was applicable to all transactions of this corporation Exported sets of table and chairs and tables and chairs sold to companies in EPZs were qualified for tax credit VAT rate applicable to wooden furniture is 10% Required: Calculate the VAT amount payable by this corporation for the tax month Given that, the damaged load of wood has been compensated by an insurance company ... (million Vietnam dongs) Up to 60 Tax rates (%) Above 60 to 12 0 10 Above 12 0 to 21 6 15 Above 21 6 to 384 20 Above 384 to 624 25 Above 624 to 960 30 Above 960 35 Applying the above progressive table,... 70.6% 28 .2% 1. 2% 10 0% EU 65 .2% 32. 7% 2 .1% 10 0% Others Total [Source: Herve Dutel, The socio-economic context of public finance, Lecture of FSP, Hanoi 20 03] The above example shows that in 19 98... introduction many changes and amendments have been made This law was then revised in 20 03, 20 05, 20 08, 2 013 , 2 014 and in 2 016 2. 2 .1 TAXPAYERS Taxpayers of VAT are organizations and individuals who are engaged
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