must calculate tax. The VAT amount at the previous stage will be automatically transferred to the selling price at the next stage and the final consumer is the one who must pay the entire VAT amount on that product. The total tax that the final consumer must pay is equal to the total tax arising through each stage of the production and trading process of goods and services.
Assuming that fabric sold on the market is circulated through stages: from cotton spun into yarn, yarn woven into fabric and sold on the market, the VAT rate at each stage is 10%, we have the following example:
Business basis
business
Purchase price | Selling price (not included) VAT included) | Value increase | VAT number must pay | |
(1) | (2) | (3) | (4) = (3) - (2) | (5) = (4)*10% |
Cotton | - | 1000 | 1000 | 100 |
Fiber | 1000 | 1500 | 500 | 50 |
Fabric | 1500 | 2300 | 800 | 80 |
Sell on the market school | 2300 | 3000 | 7000 | 70 |
Total | 3000 | 300 |
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Through the above example, we see that at each stage of circulation, the business establishment must pay VAT on the corresponding VAT of that stage, and the total VAT at all stages added together is equal to the final tax that the consumer must pay (100 + 50 + 80 + 70 = 300).
Compared with turnover tax, we see that turnover tax stipulates that the revenue generated is the basis for implementing the tax collection regime. Therefore, the State imposes tax on the entire revenue generated by the product through each transition from production, circulation to consumption. If the taxable products and goods go through more stages, the amount of tax collected by the State also increases through the stages, so the application of turnover tax leads to the situation of duplicate tax collection for the revenue that was taxed at the previous stage. That is unreasonable, affecting
negative impact on production and circulation of goods. Thus, the above characteristics show that VAT has overcome the disadvantage of turnover tax which is "tax on tax".
Fourth , VAT is a highly neutral tax because its purpose is not to adjust income or asset differences like income tax or property tax.
Neutrality manifests itself in two aspects:
- VAT is not affected by the business results of the taxpayer, because the taxpayer is only the person "on behalf" of the consumer paying this tax to the State budget. Therefore, VAT is not a factor of production costs but simply a revenue added to the selling price of the supplier of goods and services.
- VAT is not affected by the organization and division of the production and business process, because the total tax at all stages is always equal to the tax calculated on the selling price at the final stage regardless of the number of stages.
Fifth, VAT is only levied on consumption activities taking place within the territory, not on consumption activities outside the territory. This feature creates fairness in international transactions by not collecting taxes on exported goods and services and taxing imported goods and services.
In addition, VAT also has some other characteristics such as being a typical indirect tax, calculated based on the value of goods and services, not based on their physical form or function.
1.1.3. The role of value added tax in the tax system
Tax is a very important tool for the State to perform its macro management function on the economy, especially in the current period when the economy is in recession.
Our country is in the process of operating according to a market mechanism under state management.
As an indirect tax, VAT contributes to supplementing and perfecting the tax system of each country. If in the past, the application of turnover tax caused many difficulties for both tax collection by tax authorities and tax payment obligations of taxpayers, the birth of VAT has helped those tasks become much simpler and faster.
In many countries, VAT is the main source of revenue from taxes, so VAT plays a very important role and is shown as follows:
Firstly, VAT has the effect of regulating the income of organizations and individuals consuming goods and services subject to VAT.
Second, VAT is an important revenue of the State Budget.
Value added tax creates a large and relatively stable source of revenue for the state budget. In Vietnam, VAT currently accounts for about 20-23% of total revenue from taxes, fees and charges.
Third, VAT is only calculated on the added value of goods and services through the stages of production, circulation and consumption, not on the value subject to VAT at previous stages. Taxes paid at previous stages are deducted at later stages, so organizations and individuals are encouraged to invest in developing production and business, encourage specialization and cooperation in production, improve economic efficiency, and be consistent with the development of a market economy.
Fourth, encourage the export of goods and services through the application of a 0% tax rate. Enterprises exporting goods and services not only do not have to pay VAT at the export stage but also get a refund.
All input taxes collected at the previous stage should help reduce costs, lower product prices, and increase the competitiveness of export goods and services.
Fifth, promote the implementation of accounting regime; use invoices, vouchers and payment via banks because the calculation of output tax and deduction of input VAT clearly stipulate that it must be based on purchase and sale invoices.
In summary: VAT is an advanced tax, the application of VAT overcomes the disadvantage of the previous turnover tax which is "tax on tax", the application of VAT has many advantages, positive effects on encouraging production and business, export, increasing investment, increasing revenue for the state budget.
1.1.4. Conditions for applying value added tax
Although it is a progressive tax, it has been studied and applied by many countries, but not in all conditions can this tax be successfully applied. To achieve the highest efficiency in implementing the VAT law, the following conditions must be met:
Firstly , the economy develops stably: VAT is studied and applied instead of turnover tax because it overcomes duplication in tax calculation. However, if this type of tax is applied in an unstable economy, the prices of goods often change erratically, the output tax of production and business establishments will be smaller than the input VAT, so the State not only cannot collect tax but also has to refund tax. Therefore, a stable economy ensures a stable source of revenue for the State budget from VAT, reducing cases of tax refund.
Second , the State must truly manage the economy by law: if the economy is allowed to operate freely, all efforts of the State to collect taxes will become meaningless. We all know that VAT is levied on
The added value of each stage of production, therefore, if the law does not clearly stipulate, tax loss for the previous stages is entirely possible. Tax collection and tax management are two sides of a dialectical unified process, so in addition to focusing on tax collection, attention is always paid to the tax management mechanism to ensure that it is truly synchronous and in accordance with the provisions of the law.
Third , all business establishments must record and have unified accounting books, and invoices and vouchers must be used in all transactions. Input VAT deduction depends on invoices and vouchers in transactions, so not only are buyers and sellers required to make invoices and vouchers, but taxpayers are also required to fully and accurately account for their production and business activities. In addition, in a market economy, there are many economic components participating in business exchanges with each other, and each component is equal before the law, requiring a unified system of accounts and invoices and vouchers to become even more necessary.
Fourth , payment relations in a developed economy: the market economy with its fast transaction speed and large volume, therefore, makes it difficult for participants to make manual payments. The developed banking system makes payment relations more convenient and effective. Through payment through the State Bank, it is possible to grasp the activities and business results of economic units, thereby checking the declaration and tax payment of these entities.
Fifth , the qualifications of tax management and collection staff: tax management and collection staff must be professionally trained and have the capacity to implement tax management procedures and techniques in accordance with the provisions of law.
In fact, the loss of tax revenue caused by the tax staff is also a matter of concern. Partly due to the degenerate qualities of some staff who deliberately turn a blind eye to taxpayers evading taxes for personal gain, and partly due to limited qualifications that fail to detect the sophisticated tricks of these subjects to appropriate tax money. Therefore, to achieve the best results for VAT, staff training is an indispensable condition.
Sixth , businesses must have a general sense of law compliance and self-discipline in tax declaration and payment: no matter how carefully a tax is researched and developed, if applied in an environment where all organizations and individuals do not have a sense of law compliance and self-discipline in tax declaration and payment, it cannot achieve high efficiency.
Seventh , the level of education is relatively high: people must understand their tax obligations, know how to record, read, write, and keep invoices and documents. That is the basis for calculating taxes. This will help tax laws come into effect quickly, avoiding many questions from people about taxes, while also ensuring their rights and obligations.
Eighth , there must be support from modern technical means in tax collection management, that is, the computer system needs to be equipped synchronously not only within the tax authority but also between the tax authority and the sectors and business units, this will contribute to connecting the tax authority with the sectors and taxpayers and at the same time make the tax declaration and payment process take place quickly, accurately and cost-effectively.
In summary: if VAT law is applied in an environment with all the above conditions, it will be very effective, not only maximizing the advantages but also minimizing the disadvantages of this tax itself.
1.2. Value added tax law
1.2.1. Concept and objective necessity of value added tax law
a. Concept of value added tax law
Taxes in general and VAT in particular are legal obligations arising on the basis of legal acts, production and business activities of individuals and legal entities recognized and protected by the State. This legal obligation arises on the basis of State mandate by law and arises between individuals and legal entities and the State in relation to public law. VAT obligations are understood as the level and ability to act required of the parties when participating in VAT relations, prescribed by law and guaranteed by the State. The content of VAT obligations includes:
- Subjects must perform certain actions to satisfy the rights of the other party, such as to satisfy the state's right to collect VAT, VAT payers must perform mandatory actions such as registration, declaration, tax payment, tax settlement... Conversely, to ensure the rights of VAT payers, the state must also perform certain actions such as tax deduction, tax refund, tax exemption consideration...
- Entities must bear legal responsibility when they do not perform or do not properly perform mandatory VAT actions as prescribed by law.
The level and ability of the subjects to act are all regulated by law, so when talking about VAT obligations, we must talk about its legal basis. In Vietnam, through a survey of legal practice, it can be seen that the legal basis of VAT obligations includes:
- Constitution: The Constitution is the basic law of the State, regulating the most general and basic issues of a country, in which tax is an obligation.
basic duty of citizens, therefore this duty is first stipulated in the constitution. The 1992 Constitution of the Socialist Republic of Vietnam in Article 80 stipulates: "Citizens have the duty to pay taxes and perform public service work according to the provisions of law".
- VAT Law: stems from the principle that taxes must be regulated by law; without a tax law, there is no tax obligation. Therefore, the VAT Law is the basic legal basis of VAT.
- Decree of the Government detailing the implementation of the VAT law.
- Circulars of the Ministry of Finance and other relevant Ministries guiding the implementation of the VAT law.
Legal regulations regulating VAT relations are expressed in different forms of documents and issued by many competent state agencies, but it is necessary to affirm that the VAT Law is the legal basis for generating VAT obligations, and is a basic part with legal value governing other legal documents in the system of legal documents on VAT.
Thus, VAT law is a system of legal norms regulating social relations arising in the process of implementing VAT rights and obligations.
The system of legal regulations on VAT, based on the content of social relations arising in the process of performing VAT obligations, which those legal regulations regulate, can be divided into:
- Group of legal norms on material matters: this group of legal norms regulates social relations arising between VAT tax-liable subjects and the state, including regulations on the scope of VAT application (subjects subject to VAT), scope not subject to VAT application (subjects not subject to VAT), objects