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I The value added tax in the United Kingdom Overview about the value added tax in the United Kingdom In the United Kingdom, the value added tax (VAT) was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue after income tax and National Insurance It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994 VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union.There are complex regulations for goods and services imported from within the EU The default VAT rate is the standard rate, 20% since January 2011 Some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children's clothing).Others are exempt from VAT or outside the system altogether Under EU law, the standard rate of VAT in any EU state cannot be lower than 15%.Each state may have up to two reduced rates of at least 5% for a restricted list of goods and services.The European Council must approve any temporary reduction of VAT in the public interest VAT is an indirect tax because the tax is paid to the government by the seller (the business) rather than the person who ultimately bears the economic burden of the tax (the consumer) Opponents of VAT claim it is a regressive tax because the poorest people spend a higher proportion of their disposable income on VAT than the richest people Those in favour of VAT claim it is progressive as consumers who spend more pay more VAT The content of the value added tax in United Kingdom 2.1 Tax payer Businesses with a turnover of more than £85,000 must register to pay and charge VAT on the products and services they buy and sell Other businesses can choose to register for VAT voluntarily Basically it is a tax on business transactions Businesses charge their customers VAT, but must then pay this to HMRC (Her Majesty’s Revenue & Customs) when they file their VAT return 2.2Tax bearer The tax bearer can not be found because tax can be transferred in the UK 2.3 Tax rate There are currently three rates of VAT: standard (20%),reduced (5%) and zero (0%).In addition some goods and services are exempt from VAT or outside the VAT system The standard rate of VAT has changed over time, with Governments choosing to raise or lower this tax depending on their priorities and the state of the economy The rates were: Year Standard rate of VAT 1973-74 10% 1974-79 8% 1979-91 15% 1991-2008 17.5% 2008-09 15% 2009-11 17.5% 2011-present 20% The standard rate of VAT in the UK is currently 20% and this is the rate charged on most purchases However, there are other VAT rates which need to be aware of as a business Reduced rate VAT is charged on sanitary products, energy saving measures and children’s car seats and is charged at 5% The zero rate – as the name suggests, charged at 0% – is applied to most food, books, newspapers and children’s clothes Although no VAT is charged, the sale of zero rate goods and services still has to be recorded and reported on the VAT return On top of that, some items are ‘exempt’ These include postage stamps and financial and property transactions As with zero rate items, no VAT is charged on these goods and services However, these not need to be counted in the taxable turnover EU law dictates that the standard rate of VAT in EU states should not be lower than 15% To be more specific, the following are the rates applicable to some common goods and services: Standard rated (20%) Alcoholic drinks Biscuits (chocolate covered only) Bottled water (inc mineral water) Calendars & diaries CDs, DVDs, video games, & tapes Clothes & footwear (not for children under 14) Confectionery/sweets Delivery charges (postage & packaging) Electrical goods Electricity, gas, heating oil & solid fuel (business) Food & drinks supplied for consumption on the premises Hot take-away food & drinks (inc burgers, hot dogs, toasted sandwiches) Fruit juice & other cold drinks (not milk) Nuts (shelled, roasted/salted) Postal services (Royal Mail/other licensed operators) Reduced rated (5%) Children's car seats Electricity, gas, heating oil & solid fuel (domestic/residential/charity non-business) Energy saving materials (permanently installed in residential premises) Maternity pads Mobility aids for the elderly Sanitary protection products Smoking cessation products Zero rated (0%) Aircraft (sale/charter) Bicycle & motorcycle helmets Books, maps & charts (not ebooks) Brochures, leaflets & pamphlets Building services for disabled people Canned & frozen food (not ice cream) Chilled/frozen ready meals, convenience foods Clothes & footwear (for children under 14 only) Construction & sale of new domestic buildings Donated goods sold at charity shops Equipment for disabled people (inc blind/partially sighted) Live animals for human consumption Newspapers, magazines & journals Nuts & pulses (raw for human consumption) Prescription medicine Protective boots & helmets (industrial) Public transport fares (bus, train & tube) Sewerage (domestic & industrial) Shipbuilding (15 tonnes or over) Tea, coffee & cocoa Water (household) Exempt Antiques, works of art or similar, when sold to public institutions Commercial land & buildings Cultural events operated by public bodies Education, vocational training Financial services Funeral plan insurance Gambling (betting, gaming, bingo, lottery) Health services (doctors, dentists, opticians, pharmacists & other health professionals) Medical treatment & care Sports activities & physical education TV licence 2.4 Tax base A tax base is the total amount of assets or income that can be taxed by a taxing authority, usually by the government It is used to calculate tax liabilities This can be in different forms, including income or property The tax base of the value added tax in the United Kingdom includes: ● ● ● ● The unit price excluding VAT The quantity The VAT rate Any cash discount 2.5 Tax incentive and redistribution: Two general issues arise in the context of VAT in the United Kingdom: incentives and redistribution It is frequently suggested that a revenue-neutral shift from direct to indirect taxation, such as that introduced in 1979, will reduce tax induced disincentives to work But if the attractiveness of working relative to not working, or working an extra hour as opposed to not doing so, is determined by the amount of goods and services that can be bought with the wage earned, a uniform consumption tax and a uniform earnings tax will clearly have very similar effects Cutting income tax will not increase the attractiveness of work if the price of goods and services rises by an equivalent amount because of the increase in consumption tax It may be, of course, that the shift will reduce the burden of taxation for one group and raise it for another, and that this redistribution will affect incentives But this has little to with the choice between direct and indirect taxes The second general issue concerning VAT relates to redistribution Many goods in the UK are zero-rated for VAT, with food and children’s clothing being examples This zero-rating is often defended on distributional grounds, because those with low incomes allocate a large proportion of their expenditure to these items But VAT should not be considered in isolation from the rest of the tax and welfare system Since the UK government is able to levy a progressive income tax and pay welfare benefits that vary according to people’s needs and characteristics, this will generally prove a much more effective means of meeting its equity objectives – although the better-off spend a smaller proportion of their incomes on zero-rated goods, they spend larger amounts of money and are therefore the main cash beneficiaries of zero-rating would also have the advantage of removing the distortions in people’s consumption decisions that result from differential tax rates for different goods 2.6Formulas to calculate the United Kingdom VAT Calculate the amount of VAT by choosing the rate that suits you and apply the following formula: The amount of excluding VAT x (VAT rates/100) The amount of tax (including VAT) is as follows : The addition of the Amount excluding VAT + VAT amount II Comparison between the value added tax in the United Kingdom and in Viet Nam The similarity between the value added tax in the United Kingdom and in Viet Nam - Tax rate: Similar to the VAT in the United Kingdom, the law on value added tax of Vietnam currently also stipulates three kinds of tax rates: 0%, 5% and 20% The 0% tax rate applies to exported goods and services including processed goods for export; activities of construction and installation of works in foreign countries and works of export processing enterprises; goods sold to duty-free shops; goods and services not subject to export VAT The tax rate of 5% for goods and services such as fertilizers, insecticides and growth stimulants for animals and plants; equipment, machinery and specialized tools for medical; unprocessed forest products (except wood and bamboo shoots) in the commercial business stage; scientific and technological services; etc The 20% tax rate applies to goods and services like gold, silver, precious stones, brokerage services, etc Moreover, some goods and services are exempt from VAT or outside the VAT system in Viet Nam The followings are some examples of this kind of goods and services: + Products of cultivation, husbandry, aquaculture, which have not yet processed into other products or just processed by ordinary organizations, individuals that produce and catch by themselves and sell at the import stage + Products are animal breeds and plant varieties, including breeding eggs, breeding animals, seedlings, seeds, sperm, embryos and genetic materials +Irrigation and drainage; plowing and harrowing the land; dredge inner canals and ditches in service of agricultural production; Agricultural product harvest service + Salt products made from sea water, natural rock salt, refined salt and iodized salt + State-owned houses sold by the State to current tenants + Life insurance, student insurance, pet insurance, crop insurance and reinsurance + Credit extension services; securities trading; capital transfer; derivative financial services, including interest rate swaps, forward contracts, futures, foreign currency options and options and other derivative financial services as prescribed by law - Medical services, veterinary services, including medical examination and treatment, preventive services for humans and animals + Public postal, telecommunications and Internet services universalized under the Government's program + Public services on sanitation, water drainage in streets and residential areas; maintenance of zoos, flower gardens, parks, street greenery and public lighting; funeral service + Maintenance, repair and construction with capital contributed by the people, humanitarian aid capital for cultural and artistic works, public works, infrastructure and houses for social policy icon + Teaching and vocational training in accordance with the law + Broadcasting radio and television with state budget capital … - Tax base: The tax base in both countries include the unit price excluding VAT, the quantity and the VAT rate The difference between the value added tax in the United Kingdom and in Viet Nam The United Kingdom Tax payer Tax bearer Tax rate Tax incentive Viet Nam Businesses with a turnover Organizations and individuals that of more than £85,000 must produce ,trade and import taxable register to pay and charge goods and services are taxpayers VAT on the products and services they buy and sell Objects subject to value added tax are The tax bearer can not be goods and services used for found because tax can be production, business and consumption transferred in the UK in Vietnam, except for those not subject to tax under the provisions of the law on value added tax and law documents guiding the implementation The standard rate of VAT in The standard rate of VAT in Viet Nam the UK is currently 20% is currently 10% ( the other tax rate in Viet Nam are 0%, 5% and 20% as mentioned above, which are similar to VAT in the UK) applied to industrial products, infrastructure, tourism products and related services, … for instance The VAT in the United In Viet Nam, besides tax exemption, Kingdom has the tax there are also VAT deduction and VAT exemption refund - VAT deduction: + Input tax on goods and services used for the production and trading of goods and services subject to valueadded tax is fully deductible + The input tax on goods and services used simultaneously for the production and trading of goods and services subject to value added tax and not subject to value added tax shall be deducted from the input tax amount of goods only , services used for the production and trading of goods and services subject to value added tax + The tax deduction of input tax on purchased agricultural, forestry and aquatic products does not apply to cases where these products are used as raw materials for production or processing of exports - VAT refund: + If an enterprise’s input VAT exceeds its output VAT during 12 consecutive months, it can claim a refund from the authorities + In certain cases (e.g exporters where excess input VAT credits exceed 300 million VND), a refund may be granted on a monthly/ quarterly basis Newly established entities in the pre-operation investment phase may claim VAT refunds on a yearly basis or where the accumulated VAT credits exceed 300 10 million VND +Newly established entities and certain investment projects which are in the pre -operation stage may be entitled to refunds for VAT paid on imported fixed assets based on shorter timelines than normal, subject to certain conditions III Lessons for Vietnam The efforts of the Ministry of Finance and the General Department of Taxation has been recognized by the business community, society and the World Bank (WB): In 2017, Vietnam's business environment was assessed by the World Bank to increase 14 places, standing 68/190 economy; In particular, Vietnam's tax payment index increased to 81 levels This is the first time Vietnam has risen to the position of 86/190 countries and ranked 4th in the ASEAN region after Singapore, Malaysia and Thailand In 2018, although the tax payment index was reduced by 45 levels compared to 2017 (131/190), the decrease in grades was due to policy factors that changed to tightly control the VAT refund, but on the defensive side Tax payment procedures related to tax agencies are only 17 hours per year; 1.42 hours is also a relatively high reduction compared to the region To continue promoting the achievements and bringing the tax policy to contribute to restructuring the national financial system towards the goal of fast, comprehensive and sustainable development; We propose the most basic solutions to continue perfecting the synchronous tax policy system, thereby taking part in restructuring the state budget revenues, ensuring and promoting economic development 11 For Tax Rate According to the Ministry of Finance, the reference from international experience shows that, in the context of rising public debt in countries including developed countries, countries tend to restructure State budget revenues in the direction of Increase revenues from indirect taxes Specifically, to increase revenue to offset the decline in revenue due to the reduction of corporate and personal income tax, the countries turned to increasing consumption tax including value added tax and excise tax In addition, Vietnam's current value-added tax rate is still quite low, not in line with international practices Therefore, we can take VAT increase into consideration ● Raise VAT from 10% to 12% from 2020 ● Raise VAT from 12% to 14% from 2021 For tax bearer As we all know, VAT is a typical indirect neutral tax At each stage of the production process, the tax payable is transferred to the next stage until the final consumer So it does not affect the business decision of the business In theory, so, because if these stages are interrupted, ie if there are certain cases that are listed as subjects not subject to VAT, the advantage of avoiding duplication of taxation will no longer matter At this time, the enterprise does not have to declare and pay output tax but does not declare input tax withholding This makes it difficult to predict the effects of taxes on business operations, so those who are not subject to VAT should be limited to a limited number of cases Article of the VAT Law provides for 25 groups of goods and services not subject to tax Such numbers are too many, while the goal of the VAT policy is to expand the taxable area and narrow the clue Some products included in this category are still unreasonable, not really encouraging export, causing disruption in tax collection and difficulties for enterprises Take an example that is machinery equipment, specialized means of transport which cannot be produced at home and are imported to create fixed assets for enterprises, etc so far, they have not been subject to VAT, It is thought that when applying this tax law, in the context of our country's economy still facing many difficulties, most businesses have little capital so this provision will help businesses not have to spend an amount of advance capital However, nowadays, when the economy is growing, the forms of raising capital for businesses are more and more convenient, the taxation of this item will 12 not only make the tax law unpopular Often, but also cause disruptions to the following stages, complicated in the tax calculation of the business ● ● ● We suggest that: Reducing the number of groups of goods and services not subject to VAT to ensure the continuity of VAT Gradually reduce the tax rate to 5%, aiming to uniformly apply a tax rate of 10% (and be adjusted to 12-15% according to the schedule) Abolishing the regulation that the subjects not declare and calculate tax (goods and services for domestic consumption: excluding the payment of output VAT but deducting the input VAT - deformation of the 0% tax rate) 13 REFERENCE "Value-added tax definition and meaning | Collins English Dictionary '' www.collinsdictionary.com "value added tax | Definition of value added tax by Lexico '' Lexico Dictionaries | English Introduction to VAT" HM Revenue and Customs "The UK's VAT Rate Explained" Kash Flow Retrieved November 2013 Victor, Adam (31 December 2010) "VAT: a brief history of tax" The Guardian "VAT Output Tax Toolkit" (PDF) HM Revenue & Customs July 2013 Retrieved November 2013 "Rates of VAT on different goods and services" HM Revenue and Customs "VAT relief for parcels entering UK 'reduced'" BBC News November 2011 https://luatminhkhue.vn/kien-thuc-co-ban-ve-thue-gia-tri-gia-tangvat-.aspx 10 “Thue VAT cua Viet Nam o dau so voi cac nuoc tren the gioi” NDH, 17 August 2017 14 ... forms, including income or property The tax base of the value added tax in the United Kingdom includes: ● ● ● ● The unit price excluding VAT The quantity The VAT rate Any cash discount 2.5 Tax incentive... follows : The addition of the Amount excluding VAT + VAT amount II Comparison between the value added tax in the United Kingdom and in Viet Nam The similarity between the value added tax in the United. .. between the value added tax in the United Kingdom and in Viet Nam The United Kingdom Tax payer Tax bearer Tax rate Tax incentive Viet Nam Businesses with a turnover Organizations and individuals