Inadequacies of Regulations on Taxpayers and Taxable Subjects

2.3.1. Inadequacies of regulations on tax payers and taxable subjects

2.3.1.1. Regarding tax payers

- Clause 25, Article 5 of the Law on VAT stipulates: goods and services of business individuals with an average monthly income lower than the general minimum wage applicable to domestic organizations and enterprises. The above provision clearly demonstrates the State's preferential policy of exempting VAT for low-income business households and individuals, but due to the implementation of the salary reform roadmap and the requirement to simplify and modernize tax management, the request for amendment has been made, basing income on the minimum wage is not consistent with the nature of VAT (the subjects subject to VAT are goods and services). In fact, the minimum wage is classified into 4 regions, adjusted regularly every year with an increase according to the salary reform roadmap. Meanwhile, the Law on Tax Administration stipulates that taxpayers must self-determine their tax obligations, so with the regular adjustment of salary levels, business households cannot self-determine whether they are subject to VAT declaration and payment or not.

- Taxpayers are households and individuals doing business, so it is difficult to count specific numbers, so the number of these subjects is unstable and easily changes every year. Moreover, the sales of goods and services are difficult to determine because there are no invoices or documents when providing goods and services, so the main method of tax determination is applied. The amount of tax payable is not based on revenue but on the reverse process, meaning that the tax officer and the taxpayer agree to determine the amount of tax payable first, then calculate the revenue on the books to legalize the collection. For example: a vegetable seller must pay 50,000 VND in tax every month. Thus, the monthly revenue will be: 50,000/10%/7% = 7,142,858 VND. But in reality, every month the person

This business actually paid 140,000 VND and monthly revenue is: 7,142,858 x 140,000/50,000 = 20,000,000 VND. Such sales are difficult to achieve for small retailers. Therefore, it does not accurately reflect revenue and tax payable as well as low compliance with the law. Some of the reasons for the above situation are:

Maybe you are interested!

+ Taxpayers are not aware of their rights in correctly calculating revenue as the basis for determining the amount of tax payable.

+ Difficult to determine the number and revenue of taxpayers.

+ Management costs are high while revenue is not high and unstable.

+ Tax officials' awareness of compliance is not high.

Therefore, the implementation of tax law is not in accordance with regulations. The revenue does not reflect the business situation, and increases management costs in terms of both human resources and budget. Because this calculation is average, it is easy for unfair situations to occur when taxpayers generate low revenue, leading to lower tax payable than the prescribed tax rate, while those with high taxable revenue pay low tax because the tax payable has been prescribed. In order to ensure effective tax management and encourage the private economy, encourage individuals and households to enrich themselves legitimately, it is necessary to classify taxpayers according to revenue levels and collection rates to ensure that no revenue sources are missed and to improve collection efficiency. Ensure the principle: tax revenue from taxpayers must be greater than the cost that the tax authority must spend to collect taxes. Accordingly, it is necessary to focus on revenue management for business households with large revenue.

2.3.1.2. Regarding taxable subjects

- The current VAT law in our country stipulates that the subjects subject to VAT are "goods and services used for production, business and consumption in Vietnam" [11, p.1]. The above regulation also reveals a number of shortcomings:

+ VAT is a tax levied on the consumption of goods and services by final consumers, not on the goods and services themselves. VAT arises through the purchase and exchange of goods and services. Therefore, goods and services that have not been put into circulation or are in storage are not subject to VAT, except in cases where the buyer has purchased goods from a manufacturing facility for sale, in which case this storage is subject to input tax.

+ The legal event that gives rise to VAT liability is the taxable activities, not the goods or services themselves that are produced, traded or consumed. This leads to the case where a type of goods, if used for different purposes, is not subject to tax or is subject to different tax rates. For example, if a business produces animal feed for sale, it is subject to a VAT rate of 5%, but if the business continues to use that animal feed to raise livestock and poultry that it operates, it does not have to calculate or pay VAT.

- The Law on VAT divides taxable and non-taxable subjects into two categories, which is not scientifically accurate. Because: non-taxable subjects are those that are outside the scope of the Law on VAT, so in principle they will not be regulated in the law. However, the goods and services listed in Article 5 of the Law on VAT 2008 are those that, when supplied, are subject to VAT (within the scope of the law), but are exempted from tax. As a result, the entities that sell these exempted goods and services do not have to calculate and pay VAT and are not allowed to deduct input VAT.

- The current regulations on non-taxable subjects are too broad, leading to difficulties in the process of deducting input VAT. Some non-taxable goods and services are included in the law to implement social policies for low-income people, but in reality, they are not subject to tax.

It is difficult to determine which goods and services are provided by low-income people. Therefore, this regulation is essentially subjective, making it easy for subjects to take advantage of tax evasion. This is also a weakness of the current application of multiple VAT rates, while with low compliance with the law by taxpayers, tax evasion and tax rate differences often occur.

* For goods and services not subject to VAT

- The current Law on Value Added Tax stipulates that a number of groups of goods and services are not subject to value added tax. These are goods and services that were previously exempted from sales tax or had a low sales tax rate (0.5%). This provision continues to inherit the previous Law on Sales Tax, suitable for the conditions when our country's economy is in the early stages of transformation and creates conditions for businesses to have time to adapt to the new tax law. However, in the current situation and to implement international commitments in the integration process, it is necessary to review a number of goods and services that are not subject to value added tax to make appropriate adjustments, specifically:

+ Regarding public services on street and residential area sanitation and drainage provided to organizations and individuals, including activities of collecting, cleaning, transporting, and treating garbage and waste; ... maintaining hygiene at mobile toilets and collecting, transporting, and treating other waste, up to now, many enterprises of all economic sectors have participated in providing sanitation, drainage, and waste treatment services without distinguishing between public services on street sanitation and drainage and sanitation services for other organizations and individuals. Therefore, not being subject to tax means that businesses providing these services cannot deduct input VAT, increasing costs.

+ Some groups of goods and services need to continue to be exempted from VAT to suit Vietnam's socio-economic conditions, including:

Group of agricultural products produced and sold by organizations, households and individuals; necessary social services serving human development policies, including: healthcare, education, training; some public services such as street and residential area drainage services, maintenance of zoos, flower gardens, parks, street trees, public lighting, public radio and television broadcasting; group of goods serving security and defense funded by the State Budget, including weapons and specialized equipment serving defense and security; group of imported goods according to international practices that are not subject to VAT such as humanitarian aid, non-refundable aid, imported goods according to diplomatic immunity standards, personal luggage standards, etc.

- Clause 1, Article 5 of the Law on VAT stipulates: "Products of cultivation, livestock, aquaculture, and fishing that have not been processed into other products or have only undergone normal preliminary processing by organizations and individuals that produce, catch, and sell them and are at the import stage" [11, p.3] are not subject to VAT. However, in the case of livestock and aquaculture enterprises that sign livestock farming contracts with highly skilled households, the enterprise only provides medicine, breeds, feed, and livestock farming techniques, while the household is responsible for organizing the farming, delivering the products, and receiving payment, it is difficult to determine whether the revenue is subject to tax or the revenue of the enterprise when selling the products is subject to tax. This has not been clarified in the law, causing inconsistent interpretations.

- At Point c Clause 4 Article 3 Decree No. 123/2008/ND-CP stipulates that capital transfer includes the transfer of part or all of the invested capital, including the case of selling an enterprise to another enterprise for production and business, transferring securities and other forms of capital transfer according to the provisions of law [3, p.2]. In fact, the transfer of capital to another enterprise has narrowed the beneficiaries.

tax exemption, because besides the subjects considered as enterprises, there are many other economic organizations that are not enterprises, which can form a new legal entity or not form a new legal entity, are also subject to VAT. In addition, this provision only mentions the case of capital transfer, that is, capital that has been contributed to another economic organization, not the transfer of capital contribution rights, leading to subjects in this case still having to pay tax.

- Clause 6, Article 3 of Decree No. 123/2008/ND-CP stipulates that for the maintenance, repair and construction activities of works specified in Clause 12, Article 5 of the Law on Value Added Tax, if other capital sources are used other than the capital contributed by the people (including capital contributed and sponsored by organizations and individuals), humanitarian aid capital, and the other capital sources do not exceed 50% of the total capital used for the work, the non-taxable object is the entire value of the work [3, p.2]. From the above provisions, there are two cases.

+ If the project is not subject to tax, meaning that other sources of capital contribute less than 50% of the total capital used, the unit implementing the project is not allowed to deduct input VAT corresponding to the other sources of capital used.

+ If the project is subject to tax, it means that the capital contributed by the people is less than 50% of the total capital used. According to regulations, the capital contributors are usually people who are not subject to VAT because they are not business entities, so they will have to pay tax on these projects.

2.3.2. Inadequacies in regulations on tax bases and methods for calculating value added tax

2.3.2.1. On the basis for calculating value added tax

a. About taxable price

Currently, there are no specific regulations on tax calculation prices of promotional products, goods and services in tax legal documents.

VAT. The current form of promotion is often used by businesses in their business process, there are three forms:

- Promotions include giving out samples, providing sample services for customers to try without paying, giving away goods to customers, providing services without charging.

- Selling goods and providing services at prices lower than previous sales prices and services.

- Sales promotions, service provision with accompanying purchase vouchers, service vouchers.

Currently, when using goods and services for promotion, advertising, or samples for production and trading of goods and services (according to the provisions of the commercial law on trade promotion activities), an invoice must be issued, with the name and quantity of the goods clearly stated on the invoice, stating that they are promotional, advertising, or free samples; the tax rate and VAT lines are not stated, crossed out. Input value-added tax on goods (including goods purchased from outside or goods produced by the enterprise itself) that the enterprise uses for promotion and advertising in various forms, serving the production and trading of goods and services subject to VAT is deductible [1, p.29]. While goods and services used for exchange, gifting, donation, or payment in lieu of salary, the VAT taxable price is the taxable price of goods and services of the same or equivalent type at the same time these activities occur. Therefore, it is necessary to determine the taxable price of promotional goods and services as a basis for tax calculation.

b. About tax rates

The current VAT Law uses 3 tax rates: 0%, 5%, 10% and the criteria for non-taxable objects, leading to difficulty in determining the tax rate for each type of goods. The criteria for determining the boundaries for applying the 5% and 10% tax rates are quite complicated: both according to the name of the goods and services and according to the use of the goods.

goods and services, depending on the nature of the goods and services, leading to inconsistent application of tax rates, creating problems and loopholes for fraud in the implementation process.

* For 0% tax rate

- According to regulations, construction and installation activities for export processing enterprises are entitled to a 0% tax rate [1, p.18]. In fact, an export processing enterprise is an enterprise operating within the territory of Vietnam, specializing in the production of export goods, providing services for the production of export goods and export activities. Construction and installation activities for export processing enterprises carried out within the territory of Vietnam are not actually export activities. Therefore, this activity is subject to VAT, and the application of a 0% tax rate as prescribed causes contradictions in the implementation of VAT policy.

- Article 8 of the Law on VAT stipulates a tax rate of 0% applicable to exported goods and services and Point b, Article 6 of Decree No. 123/2008/ND-CP stipulates: “For exported services, including services provided directly to organizations and individuals abroad or in non-tariff zones.

An overseas organization is an organization that does not have a permanent establishment in Vietnam and is not a value-added tax payer in Vietnam.

“Overseas individuals are foreigners not residing in Vietnam, Vietnamese people residing abroad and staying outside Vietnam during the time of service provision” [3, p.11].

The law stipulates that exported services are subject to a 0% tax rate. However, the condition for enjoying a 0% tax rate for exported services is linked to the concept of permanent establishments of organizations and individuals, leading to a lack of feasibility, because when exporting services, the exporter does not know whether the foreign organization has a permanent establishment in Vietnam or is a value added tax payer.

Comment