If the criteria for determining tax rates are not clear, it will obviously be at a disadvantage while the same item is declared by another enterprise as not being animal feed despite the same characteristics and properties. Therefore, if the criteria for determining tax rates are not clear, it will easily cause difficulties in explanation and application, so it is inevitable that there will be unintentional or intentional misunderstandings when implementing by enterprises and management agencies. If the criteria for determining tax rates are not clear, it will affect the awareness of VAT compliance of enterprises and at the same time, it will be difficult for Customs and tax management agencies to control. Therefore, the regulations on criteria for determining different tax rates should no longer be based on the purpose of use or function of the goods.
In addition, maintaining multiple tax rates will "distort" consumer behavior due to the choice of similar goods with the same uses and features but at different tax rates... This gives an advantage to one business but disadvantages other businesses. In other words, multiple tax rates lead to an unfair and unhealthy competitive environment for businesses.
When promulgating the VAT Law, countries often choose between implementing a multi-rate tax regime or a single-rate tax regime. Each of these choices has two sides. The application of multiple tax rates, according to legal scholars, is based on the characteristics of VAT as a regressive indirect tax, with the purpose of ensuring social fairness, encouraging development and investment for subjects applying low tax rates. At the same time, applying a single tax rate will contribute to reducing tax compliance costs and simplifying management requirements. However, prescribing multiple tax rates will not ensure the neutrality of VAT nor reflect the nature of VAT levied on the added value of goods and services, which can easily cause inequality in the state's treatment of tax-paying enterprises. Some countries implement a single tax rate structure such as: Brazil (17%), UK (15%), Denmark (22%), Japan, Singapore (3%), Italy (38%), Indonesia (10%)... [11].
According to a survey by the World Bank, currently about 54% of countries applying VAT have a tax rate schedule consisting of 1 rate (excluding the 0% tax rate for exports); 23% of countries apply VAT rates with two tax rates and the remaining have more than two rates [27]. In the world, the group of OECD countries is divided into two categories.
The first group is mainly the group of countries belonging to the European Union that restrict the group of goods and services to a standard tax rate, depending on the goods and services, which can be reduced below the standard tax rate. The European VAT Directive allows EU member countries to apply a minimum standard rate of 15% and a reduction of no more than 5% [42]. The reason for these countries' reduction is to reduce taxes on basic needs, such as food and clothing, for low-income people. An example shows that VAT reduction is not as effective as policy makers want. In France, the government in 2009 cut VAT from 19.6% to 5.5% in an effort to stimulate growth in the restaurant and catering services group. However, according to the French National Institute of Statistics, commodity prices fell by no more than 1.1% in July of that year and actually edged up slightly in October. Only 30% of the benefits of the VAT cut went to customers while this tax reduction policy lost a significant amount of revenue to the Government [42].
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The second group is the group of countries that apply standard tax rates to many taxable objects. This group includes countries such as Australia, Canada, Korea, New Zealand, Singapore and South Africa with standard tax rates often lower than those in group 1 with Australia at 10%, New Zealand at 15% and South Africa at 14% [42]. These countries reformed their VAT legal systems based on the lessons of group 1 countries. Typically, in New Zealand, the government introduced a goods and services tax called GST in 1986 with a broad tax base in the same area.
one rate with only a few exceptions or exemptions. The result is the highest VAT collection ratio score in the OECD.
In the world, tax rates are often divided into basic tax rate groups such as: normal tax rate group; preferential tax rate group; special preferential tax rate group; special tax rate group of 0% for exported goods. Low tax rates are often applied to essential consumer goods such as: food; medical products, agricultural products... and these are products that are used a lot by low-income people in society and considered in relation to the income of this consumer group. The following groups of goods and services are applied VAT rates lower than the common tax rates in some countries:
- China: The general tax rate is 17%, the low tax rate of 13% is applied to essential goods and services such as food, grain, clean water, fertilizer, animal feed, etc.
- Russia: A low preferential tax rate of 10% (common tax rate of 18%) is applied to three basic groups of goods: essential foods; some products for children and medical products...
- UK: Low tax rate of 5% (normal tax rate is 20%) applied to child car seats, smoking cessation products…
- Germany: A low tax rate of 7% (the general tax rate is 19%) is applied to food, plants and animals; textbooks and newspapers; art products and collectibles; entrance fees to cultural heritage sites…[27].
Applying a single tax rate will make VAT more regressive, not ensuring vertical equity of the tax. However, by unifying a single tax rate, all goods and services are subject to the same tax rate, so the VAT law is simple, easy to understand, tax administration costs, tax collection and payment costs, and compliance costs will be low for both.
enterprises and tax authorities. Policy makers will not have difficulty distinguishing groups of goods and services with different tax rates, tax officials as well as tax-paying enterprises can easily determine the scope of VAT obligations. On the other hand, applying a unified tax rate will simplify the VAT declaration form, creating favorable conditions for tax authorities in checking and inspecting the implementation of VAT obligations of enterprises. At the same time, because all goods and services have the same tax rate, the phenomenon of declaring and fraudulently using tax rates to evade and smuggle taxes will be limited.
Although both tax rate options have their own advantages and disadvantages, in the future, to comply with international practices and tax reform by 2020, it is necessary to set a tax rate. At the same time, when maintaining a tax rate, the tax rate needs to be set at a reasonable level to stimulate business production activities, stimulate consumption, and nurture revenue for the State budget.
Regarding tax rates, in the world, VAT rates have quite large differences between countries. VAT rates are especially high in developed countries in the EU and Eastern Europe. The group of countries with tax rates lower than 10% are usually in the Asian region (Japan 5%, Singapore and Thailand 7%). The general trend of countries today is to strengthen the role of VAT, while gradually reducing income tax to increase the attractiveness of the investment environment, reducing the burden on tax-paying enterprises. In 3 years (2009-2011), 13 out of 27 countries in the EU have adjusted the general VAT rate up. According to the European Council Resolution 006/112/EC dated 28/11/2006 on the common VAT system, during the period 1/1/2006 - 31/12/2010, EU member countries must ensure a minimum VAT rate of 15% (until 31/12/2015) (Article 97). In the Asian region, VAT policy is also being applied by many countries.
review and amend. In July 2012, the Japanese House of Representatives approved a roadmap to increase the VAT rate from the current 5% to 8% in April 2014 and then to 10% in October 2015. Thailand is considering a plan to increase the VAT rate from 7% to 10% [27]. The increase in VAT rate demonstrates the increasing role of VAT in the State budget and the State's effective management tool for the economy. In our country, in order to move closer to the goal of tax reform, in addition to prescribing a tax rate, it is necessary to consider the role and importance of VAT and assess the impact of changes in each tax rate on businesses and consumers to choose a reasonable tax rate.
2.1.2.2. Method of calculating value added tax
* VAT threshold
The tax reform strategy to perfect the tax calculation method is to implement the tax deduction method. The current VAT law still maintains two tax calculation methods: deduction and direct, based on determining the taxable revenue threshold. According to international practice, most countries have regulations on the revenue threshold for VAT declaration and payment to determine the subjects registering to pay VAT according to the deduction method (with revenue exceeding the threshold). The number of enterprises with revenue below the threshold (small enterprises) paying tax according to the direct method aims to simplify procedures, save costs for small-scale enterprises and prevent tax fraud. The tax registration threshold is set as a basis for applying the tax calculation method.
In Vietnam, the amended VAT law supplements regulations on the threshold for VAT registration under the deduction method, accordingly, the deduction method is applied to operating business establishments with annual revenue from selling goods and providing services of 1 billion VND or more, except for individual business households paying tax under the direct method on VAT and supplements regulations on how to determine VAT under the direct method. Calculation method
The tax and tax threshold of 1 billion set out to facilitate tax payment for households, individuals, businesses, and cooperatives with low annual revenue and not yet qualified to fully implement the accounting, invoice, and voucher regime. The regulation on tax payment threshold itself is a positive regulation to reduce administrative procedures and compliance costs for taxpayers, as well as limit the phenomenon of invoice fraud for tax deduction and refund.
However, the revenue threshold of 1 billion VND is not reasonable because with a revenue of 1 billion VND per year, the proportion of enterprises applying the direct method is large, leading to no progress in VAT management and application, and not meeting the goal of basically implementing the tax deduction method set out in the tax reform strategy. According to the assessment of the General Department of Taxation, there are currently nearly 450,000 enterprises nationwide and it is forecasted that in the coming time, there will be a large increase in the number of enterprises [20]. And according to calculations, about 30% of small and very small enterprises will apply tax payment by the direct tax calculation method (enterprises with revenue of less than 1 billion VND). The VAT Law stipulates a high tax payment threshold, so the number of enterprises participating in tax payment by the direct method is too large, applying the direct tax calculation method does not demonstrate the superiority of VAT. If the VAT Law still stipulates a tax payment threshold, the tax payment threshold should be lower so that more businesses can participate in paying taxes using the tax deduction method, gradually getting used to a unified tax calculation method to apply in the future.
In addition, for the deduction method with a revenue threshold of 1 billion VND/year, enterprises can change the tax calculation method every year if the revenue changes up or down the revenue threshold. Meanwhile, some enterprises take advantage of the open mechanism in establishing enterprises to buy and sell invoices, take advantage of fake invoices to deduct and refund taxes, which negatively affects the business environment and causes losses to the State budget.
On the other hand, according to this regulation, there are enterprises with turnover greater than 1 billion VND/year but will separate the enterprise, apply the method that is beneficial to them, leading to inconsistency in tax management.
* Tax calculation method
In our country, all enterprises apply the accounting and business regime with invoices and documents, so in addition to the direct calculation method on VAT applied to individuals or small enterprises with low revenue, not fully implementing the invoice and document regime, VAT is calculated by the deduction method which is common. The VAT Law stipulates two tax calculation methods because it is based on the scope of VAT payers, which is initially suitable for the actual conditions of Vietnam, but does not ensure equality between VAT payers, as shown in the fact that business establishments paying VAT by the tax deduction method are entitled to deduct input VAT when satisfying certain conditions prescribed by law in Article 12; while taxpayers paying VAT by the direct method are not entitled to deduct VAT.
- Direct tax calculation method
The method of calculating VAT directly is in Article 11 of the 2008 Law on VAT and the 2013 Law on Amendments and Supplements. Accordingly, business establishments with annual revenue from selling goods and providing services of less than 1 billion VND (except for households and individuals doing business and except for cases that voluntarily register to apply the deduction method) will pay VAT according to the direct method, with the tax payable equal to (=) Rate % x Revenue.
The percentage for calculating VAT is prescribed for each activity as follows: trade, distribution and supply of goods 1%, production, transportation and services associated with construction goods with contracted materials 3%, construction services except services with contracted materials 5%, business activities
Other businesses 2%. The previous VAT Law applied VAT rates and personal income rates to 6 groups of industries with rates according to 5 regions and each province had its own applicable rate table, in total there were more than 600 different tax rates nationwide. The application of the new VAT Law with only 04 rates will create conditions for small enterprises (including small enterprises, public service units, households, and individual businesses) to greatly reduce compliance costs, while ensuring clarity and simplicity in tax law enforcement.
However, the application of the direct tax calculation method causes inequality among production and business establishments when participating in the market but having different tax calculation methods and deduction regimes. The choice of the direct method is due to its simplicity, ease of understanding, ease of implementation and in essence, applying direct calculation is to determine the amount of tax payable as a percentage of revenue. However, this is the cause of a series of different shortcomings in the implementation of VAT law such as fraud in tax refunds, leading to inequality among enterprises when participating in the market.
In addition, the method of calculating direct tax on VAT is only an accounting method and cannot be applied to tax collection. This is only a demonstration of a scientific approach in research to clarify that VAT is a tax levied on the added value whenever VAT occurs. Most businesses that are applying this direct calculation method do not properly implement the accounting, invoice and voucher regime. Therefore, in practice, tax authorities often determine VAT by determining the VAT rate or determining revenue. There are cases where VAT is determined to be quite high, leading to difficulties in paying VAT on the actual revenue of the business, so businesses often tend to declare lower revenue than actual to evade tax. This means that VAT only exists in theory.
- Deduction method