1. Taxation VN

In the next calendar year after 12 months of business, VAT declarations shall be declared whether monthly or quarterly depending on the revenue from the sale of goods and/or services in [r]

Chapter 1: Introduction of Tax System in Vietnam

principles of a tax law.

✓ “Things as certain as death and taxes, can be more firmly believed”

(Daniel Defoe, 1726, The Political History of the Devil).

✓ “In this world nothing can be said to be certain, except death and taxes” (Benjamin Franklin, The Works of Benjamin Franklin, 1817).

LO 1-1: Explain concept, nature and characteristics of taxation.

Concept of Taxation (cont.)

• Generally, tax is an amount paid by organizations and individuals forgovernments to cover their expenditures therefore taxation isassociated with the existence and development of the state

• Theoretically, citizens can get a certain number of benefits from thegovernment for taxes they have paid However, the value of certainbenefits from the government that a citizen can receive does notcorrespond to the amount of tax they have to pay

• “Taxes are the enforced proportional contribution from persons andproperty levied by the State by virtue of its sovereignty for thesupport of government and for all public needs” (Thomas M Cooley,

A Treatise on the Law of Taxation)

• The state authority is the political and social basis leading to thebirth of taxation.

• Economic basis having meaning in decisions on tax revenues is thegrowth of the economy This requires the state to develop taxpolicies in relation to the growth of the economy

Characteristics of Taxation

1)Mandatory:

• Taxation represents the relationship between states andorganizations and individuals

• States are political institutions having the supreme power in issuance

of tax laws and enforcement of organizations and individuals to have

to implement their tax duties

• States can not rely on the willingness of taxpayers Human being hasknown tax evasion since appearance of taxation in order to pay theminimum tax

• To ensure tax revenue for states’ budget, taxes are defined by thelegislation to increase the mandatory (coerciveness) of tax

Characteristics of Taxation (cont.)

2)Taxes are not directly refundable:

• Through taxes, income from organizations and individuals to be transferred to the state.

• States reserve the right to use tax revenue for the common benefits of society.

• Theoretically, the slogan "Taxation is the obligations and rights of citizens" should not be interpreted in view of exchange of equal value.

➢ Interests taxpayers receive will not correspond to the amount they pay The public services aimed at the common benefits of society, especially the interests of low-income people.

Characteristics of Taxation (cont.)

3)Taxes used for public expenditures:

• The explanation of U.S Supreme Court “A tax is not an assessment

of benefits It is, as we have said, a means of distributing the burden

of the cost of government The only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and

at https://supreme.justia.com/cases/federal/us/301/495/case.html )

• Clearly public expenditure is very meaningful to society Meanwhile, the majority of these expenditures are funded primarily from tax revenues.

➢paying salaries for civil servants;

➢funding long term projects such as construction of schools, hospitals, roads, etc.

LO 1-2: Analyze the role of taxation in the market economy.

Role of Taxation (cont.)

2)A tool to regulate the macro social economics:

Tax policies:

➢ contribute to orient domestic investment, attracting foreigninvestment, in line with the social economic development strategy of

a state

establishment of the balance relationship between supply anddemand of goods or services and the impact on the market balance

➢ contribute to implement states’ foreign economic policies in eachperiod, aiming at the economic development when to join theregional economy and globalization

Role of Taxation (cont.)

3)A tool to regulate income and implement social equality:

Tax policies:

➢intervene the process of distributing income and social wealth, limiting the big gap of living standards and income among people classes in the society.

➢distribute income among people classes via direct tax types.

➢orient consumption via indirect tax types such as excise tax.

➢ depend on society’s income → less stable than indirect taxes.

➢ tend to be progressive tax and fair vertically People with higher incomes will have to pay more income taxes This progressive highlights fairness of direct taxes than indirect taxes.

LO 1-3: Distinguish and recognize direct taxes and indirect taxes.

Classification of Taxes (cont.)

• Indirect Taxes

➢ are levied on goods or services

➢ considered as a sum of the value added to the selling price of goodsand services that consumers must pay Though consumers are peoplewho incur taxes, sellers are those who are statutory to pay taxes

➢ cause little reaction to taxpayers than direct taxes since they do notincur taxes Indirect taxes incur when consumer activities should takeplace

➢ more stable than direct taxes Even in depressed economicconditions, essential needs must still be met

➢ tend to be regressive → the biggest disadvantage of indirect taxes

Components of A Tax Law

1)Name of tax law:

• should be short and pointed out the object and scope of such taxes as these are the two issues that concern taxpayers first.

2)Taxable objects:

• include goods, services, income or assets The name of the taxes are often derived from taxable objects such as personal income tax, corporate income tax, VAT, etc.

LO 1-4: Describe components and construction principles of a tax law.

Components of A Tax Law (cont.)

• Depending on the nature of direct or indirect taxes, taxpayers may be taxed or just people who have a legal responsibility to pay the taxes received by the taxable person.

Components of A Tax Law (cont.)

5)Tax determination bases:

• Each tax has tax calculation base.

• Tax bases include the quantity of goods / services, unit price, unit, taxable income, etc.

• When constructing a tax law, governments need to define tax bases so that taxpayers cannot easily evade or conceal.

Components of A Tax Law (cont.)

6)Tax rates: rates or amounts, which is calculated on the basis of tax revenue

▪ 4 types of tax rates:

▪ defined by an

absolute figure;

▪ stable over a long

time, simple, easy to

▪ also referred to as a flat tax;

▪ assesses the same tax rate to taxpayers regardless of tax calculation bases;

▪ stable, simple, easy to calculate, popularly used, not affected by market prices.

▪ taxable incomes are not regulated really fair.

▪ is a tax rate specified as a percentage and increases with the increase of tax bases;

→ tax rate schedule will be more levels;

▪ regulate income of tax objects fairly;

▪ complex and not easy to calculate, often cause confusion

of high taxes;

▪ 2 kinds: partly progressive tax rates and fully progressive tax rates.

▪ is a decreasing ladder tax rate while increasing tax bases.;

▪ unfair because individuals with lower tax bases will pay higher tax.

Components of A Tax Law (cont.)

7)Tax exemption, tax reduction:

• substantially are taxes payable but left to taxpayers.

• totally different from non-taxable cases stipulated in a tax law.

• assist to create fairness in regulating income between organizations and individuals, assisting for taxpayers who have difficulty in doing business.

• allow states use tax instruments flexibly, helping tax policies to access to specific cases.

• also have negative effects such as complicating tax laws, increasing powers for tax authorities, being used to seek illegal interests and undermining the rigor of a tax law.

Principles of Taxation

1) Fairness/Justice: Tax should be levied fairly so that:

✓ The same amount is paid by persons or entities that are equal

in earnings or wealth (horizontal equity).

✓ The contribution in tax should increase as the taxable income

increases (vertical equity).

2) Convenience:

✓ Under normal circumstances, a taxpayer should not undergo

undue difficulty to pay tax.

✓ Therefore, the place, medium, mode, manner and time of

payment should not be an extra burden to the taxpayer.

Principles of Taxation (cont.)

3) Certainty:

✓ A good tax system is one where the taxes are well understood by

the payers and collectors.

✓ The time and reason of payment as well as the amount to be paid

by an individual should be well documented and certain or known.

4) Economical:

✓ The administrative cost of collecting taxes should be kept as low as

possible to both the collecting agent and the taxpayer.

✓ Likewise, the cost of compliance to the taxpayer should be as low

as possible.

Principles of Taxation (cont.)

5) Simplicity:

✓ The type of tax and the method of assessment and collection must

be simple enough to be understood by both the taxpayers and the collectors.

✓ Complicated taxes lead to disputes, delays, corruption, avoidance

and high costs of collection in terms of time and resources.

6) Ability to Pay:

✓ The tax should not take away so much of the income being taxed

as to discourage the performance or participating in the tax base.

Tax System in Vietnam

▪ Current tax policies of Vietnam:

LO 1-5: Understand Vietnamese tax system.

right

Tax

License Fees from 2017)

Tax System in Vietnam (cont.)

▪ Structure of Vietnamese Tax System:

Laws, Ordinances, Resolutions of NA’s Standing Committee

National Assembly, Standing Committee of National Assembly

Prime Minister Circulars, Decisions,

Tax System in Vietnam (cont.)

▪ Structure of Vietnamese Tax System:

• Ltd, Sole proprietorships

• Small companies

• Individuals, business households

TAXATION Chapter 2: License Fees

• Law on fees and charges No.97/2015/QH13 issued by National Assembly on 25 November 2015, effective from January 01, 2017.

• Decree 139/2016/ND-CP dated 04 October 2016 on regulations for license fees, effective from January

01, 2017.

• Circular 302/2016/TT-BTC dated 15 November 2016

on guidelines for license fees, effective from January

01, 2017.

Learning Objectives

fees.

Concept and Characteristics of License Fees

• Business license tax (converted to license fee from 2017) is a direct tax and usually quotas which are levied on the business license of enterprises and households.

• License fee is collected annually.

• Simplicity:

➢License fee is a specific amount.

➢Declare only one time at establishment.

LO 2-1: Explain concept, characteristics and role of license fees.

Role of License Fees

• Help the state control over the whole of business entities at their establishment or at the beginning of the year.

• Mobilize contributions of business entities from the beginning of the year in order to meet the state’s needs of expenditures while taxes have not generated revenue.

• Support actively for business registration.

License Fee Payers

• License fee payers are organizations and individuals engaging in productionand trade of goods/services, except for exemption cases, including:

1 Enterprises which are established under the

regulations of law.

5 Other organizations which have their

trade/production activities.

2 Organizations which are established under

the Law on Cooperatives.

6 Branches, the representative offices of

organizations specified in 1, 2, 3, 4 and 5 (if any).

3 Public service providers which are

established under the regulations of law.

7 Individuals, groups of individuals and

households that have their trade/production activities.

4 Business organizations of the political

organizations, the social – political

organizations, the occupational – social

organizations and people's armed units.

LO 2-2: Identify payers and exemption from license fees.

Exemption from Licensing Fee

1 Individuals, groups of individuals and households engaging in

business with annual revenues of less than or equal to VND 100million

The annual revenue is the total assessable revenue with regard topersonal income tax in accordance with regulations of law onpersonal income tax

2 Individuals, groups of individual and households engaging in

irregular business or business without fixed location

3 Individuals, groups of individual and households producing salt

4 Organizations, individuals, groups of individual and households

doing the aquaculture, fisheries and fishing logistic services

Exemption from Licensing Fees (cont.)

5 Commune cultural post offices and press agencies (printed, radio,

television and online newspapers)

6 Branches, representative offices and business locations of the

cooperatives that have direct technical service activities in service ofagriculture

7 Communal people’s credit fund; cooperatives specialized in service

business for agricultural production; branches, representativeoffices and business locations of cooperatives and privateenterprises carrying on their business in the mountainous areas

License Fee Bases

▪ License fee bases of organizations :

➢ the charter capital written in the certificate of business registration; or inthe certificate of enterprise registration; or in the charter of thecooperatives;

➢ the investment capital written in the certificate of investmentregistration or decision on investment policies (where there is no chartercapital)

preceding the year of calculation of licensing fees

➢ In case the capital is in foreign currency, it shall be converted into VND

open their accounts at the time they make payment to the state budget

LO 2-3: Define bases and rates of license fees.

License Fee Bases (cont.)

▪ License fee bases of individuals, groups of individuals and households :

➢ total assessable revenues with regard to personal income tax in accordance with regulations of law on personal income tax.

amounts of licensing fees is the revenue of the year preceding

the year of calculation of licensing fees.

➢ In case these payers engaging new business within the year , the revenue used to determine the amount of license fees shall be

the revenue of the tax year as prescribed in law on personal income tax.

License Fee Rates

▪ Rates of annual licensing fees for organizations as follows:

Charter capital / investment capital License fees for the

whole year

Branches, representative offices, business

premises, public service providers, other

business entities

1,000,000 VND / year

License Fee Rates (cont.)

▪ Rates of annual licensing fees for individuals, groups of individuals and households as follows:

Annual revenues License fees for the

whole year Revenues > VND 500 million 1,000,000 VND / year

VND 300 million < Revenues ≤ VND 500 million 500,000 VND / year

VND 100 million < Revenues ≤ VND 300 million 300,000 VND / year

License Fee Rates (cont.)

• Payers found their business within the first six months: pay license feesfor the whole year

• Payers found their business within the last six months: pay 50% oflicense fees for the whole year

• Payers without declaration of license fees must pay the license fees forthe whole year, irrespective of the time of detection which is in the first

6 months or the last 6 months

• When payers notifies a tax authority of their business suspension forthe full calendar year, they are not required to pay the license fee forthe year of business suspension If the business is not suspended forthe full calendar year, it must pay the license fee for the whole year

Example 1

Thanh Cong Corporation was established in Jan 10, 2017, having the headoffice in 10 Nguyen Trai, Dist 1, HCMC, its charter capital VND 6 billion, itstax code: 0312251145 In Feb 15, 2017, the company opened twodependent branches:

1) Thanh Cong Corporation – Binh Duong Branch, located at 105 TranHung Dao, Thu Dau Mot, Binh Duong

2) Thanh Cong Corporation – Cho Lon Branch, located at 15 Hai ThuongLan Ong, Dist.5, HCMC

The company intends to increase its charter capital to VND 12 billion inAugust 2017

Required: Calculate the license fees Thanh Cong has to pay for 2017 and

2018

Total license fees payable in 2017 4,000,000

Year 2018

Total license fees payable in 2018 5,000,000

Declaration of License Fees

▪ Declaration of license fees of organizations :

LO 2-4: Grasp declaration and payment of license fees.

➢ Declare only one time at establishment,

no later than the last date of the month

in which the business commences;

➢ Payers have dependent units in the

head offices then the taxpayers must

submit license fee declaration dossiers;

license fee declaration dossiers to the

direct taxation agencies.

➢ Payers have newly formed companies but having not engaged in business , they must

dossiers within 30 days from the date of registration certificate or certificate of registration for branch operation issued.

➢ Payers have changes of factors as the grounds for determining the rate of

submit the license fee declaration no later than December 31 of the year of change