Taxation

Pham Quang Huy (Assoc. Prof., Dr., CPAVN)

University of Economics HCMC (UEH)

Studying Contents

1 Introduction to Taxation System

2 License Tax – Tax Management

Description
of the sub 3 Export and Import Duties
contents
4 Special Consumption Tax and VAT

5 Enterprise and Personal Income Tax

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VALUE ADDED TAX
Chapter 5

Contents

1 Definition

2 Scope of application

3 Tax base and calculation method

4 Tax rates

5 Declaration and payment

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 Definition

 Added value is the value in addition to a commodity product or

service from production facilities, processing, trading or service
impact on raw materials or goods purchased, and make their value
added.
 Value added tax is a tax calculated on the added value of goods
and services arising from the production process, circulation and
consumption.
 It is an indirect tax imposed on consumer goods and services, the
sale of goods and services is the only state to collect the VAT from
the consumer goods or services and VAT that sell goods or services
to be paid not influenced by the business results of enterprises.

Definition – Model for illustration

The business entities Revenue Input tax Output tax Tax payable
A fiber manufacturing company
Imported cotton, input materials 200 20 - -
Manufactured fiber for sales 250 - 25 25-20=5

A company for weaving

Fiber which buy for production 250 25 - -
Fabric for sales 280 - 28 28-25=3

Textile company
Input textile 280 28 -
Clothes for sales 320 - 32 32-28=4

Consumer in clothes 320 32

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 Taxpayers

VAT payers are organizations and individuals producing and

trading in VAT-liable goods and services in Vietnam,
regardless of their business lines, forms and organization
and organizations and individuals that import goods or
purchase services liable to VAT from abroad.

Non-taxable objects

(1) Products of cultivation and husbandry, cultured and fished aquatic and
marine products which have not yet been processed into other products or
have just been preliminarily processed then sold by producing or fishing
organizations or individuals themselves and at the stage of importation.

(2) Products being breeding animals and plant varieties.

(3) Water irrigation and drainage; soil plowing and harrowing; intra-field canal
and ditch dredging for agricultural production; services of harvesting farm
produce.

(4) Salt products made from seawater, natural rock salt, refined salt and iodized
salt, the principal component of which has the chemical formula NaCl.

(5) State-owned residential houses sold by the State to their current tenants.

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 Non-taxable objects (cont.)

(6) Transfer of land use rights.

(7) Life insurance.

(8) Financial services: credit provision services, securities trading activities,

capital transfer and derivative financial services.
(9) Healthcare and animal health services.
(10) Public-utility post and telecommunications services and Internet services
universalized under the Government’s programs.
(11) Public services, including sanitation and water drainage in streets and
residential quarters; maintenance of zoos, flower gardens, parks and
greeneries along streets and public lighting; and funeral services.
(12) Maintenance, repair and construction of cultural, art and public-utility works,
infrastructures and gratitude houses for social policy beneficiaries funded with
people’s contributions and humanitarian aid.
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Non-taxable objects (cont.)

13. Teaching and vocational training.

14. Radio and television broadcasting funded with the state budget.
15. Publication, import and distribution of newspapers, magazines
and specialized bulletins, political books, textbooks…
16. Mass transit by bus and tramcar means public transportation of
passengers by bus or tramcar.
17. Goods which cannot be produced at home and imported.
18. Weaponry and military equipment for exclusive use in defense
and security.
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 Non-taxable objects (cont.)

19. Imported goods and goods and services sold to organizations and
individuals for use as humanitarian or non-refundable aid.
20. Goods transported from/to border gate under customs supervision.
21. Technology transfer.
22. Gold imported in the form of bar or ingot and gold not yet
fashioned into fine-art articles, jewelry or other products.
23. Export products that are unprocessed exploited natural resources
and minerals.
24. Artificial products for substitution of diseased people’s organs.
25. Goods for duty-free sale at duty-free shops.
26. National reserve goods sold by the National Reserves.
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Taxable price – Type 1

 For goods and services sold or provided by production and

business establishments, their taxable prices are VAT-exclusive
sale prices.
o For goods and services subject to excise tax, their taxable prices
are sale prices inclusive of excise tax but exclusive of VAT.
o Taxable prices of goods or services cover also additional levies
and surcharges collected in addition to the goods or service prices
which are enjoyed by business establishments, excluding those
which business establishments shall remit into the state budget.
o When business establishments apply reduced sale prices or
commercial discounts for their customers (if any), taxable prices
are reduced or commercially discounted sale prices for customers.

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 Taxable price – Type 1

Example
 Company A sells 100 shoes for customer at the non-VAT price of
450.000 dong/unit. Determine the settlement price which customer
has to pay.

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Taxable price – Type 2

 For imported goods, their taxable prices are import prices at

border gates plus (+) import duty (if any) and plus (+) excise tax
(if any). Import prices at border gates are determined according to
regulations on dutiable prices of imported goods.
 For imported goods eligible for import duty exemption or
reduction, their taxable prices are import prices plus (+) import
duty to be paid after the exemption or reduction.

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 Taxable price – Type 2

 For imported goods:

CIF price Import duty

VAT taxable price VAT

The cost of goods

CIF price Import duty

SCT taxable price SCT payable

VAT taxable price VAT
The cost of goods
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Taxable price – Type 3

 For goods and services used for barter, internal consumption,

presentation as gifts, donation or payment of salaries to laborers,
their taxable prices are taxable prices of goods or services of the
same or similar types at the time such activities are carried out.
 Goods and services used for internal consumption are those
manufactured or provided by business establishments for their
internal consumption.
 Goods for internal circulation, including those ex-warehoused for
transfer from one warehouse to another, or supplies or semi-
finished products ex-warehoused for further use in manufacture
operations of a production or business establishment are not
subject to VAT calculation and payment.

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 Taxable price – Type 3

Example 1:
 Establishment A manufactures electric fans and installs 50 fans at
its workshops, the sale price (exclusive of VAT) of this type of
fans is VND 1,000,000/fan. The output VAT amount payable for
these internally used fans are:
VND 1,000,000/fan x 50 fans x 10% = VND 5,000,000
Example 2:
 Establishment B produces garments and has a yarn workshop and
a sewing workshop. If it transfers finished yarn from the yarn
workshop to the sewing workshop for further use in the production
process, it is not required to calculate and pay VAT for the yarn
quantities ex-warehoused to the sewing workshop.
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Taxable price – Type 4

 For services of leasing such assets as houses, offices, workshops,

warehouses…, their taxable prices are VAT-exclusive rents.
 In case of leasing with rent paid in installments or prepaid for a
leasing term, the taxable price is each VAT-exclusive rent
installment or prepaid rent amount for that leasing term.

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 Taxable price – Type 5

 For goods sold on installment or deferred payment, their taxable

prices are lump-sum VAT-exclusive sale prices, excluding
interests on installment or deferred payments.
Example
A motorbike trading company sells 100 cc Honda motorbikes. The
VAT-exclusive installment sale price of these motorbikes is VND
25.5 million (including an installment payment interest of VND
0.5 million). The taxable price is VND 25 million.

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Taxable price – Type 6

 For goods processing, taxable prices are VAT-exclusive

processing prices under processing contracts, consisting of
remunerations, costs of fuel, power, auxiliary materials and other
expenses for the processing operation.
 For cases of construction and installation involving the contracted
supply of materials, taxable prices are construction and installation
prices inclusive of the VAT-exclusive value of materials.
 Eg: Construction company B enters into a work construction
contract, covering also the value of construction materials. The
VAT-exclusive total payment value is VND 1,500 million, of
which the VAT-exclusive value of construction materials is VND
1,000 million. Then the taxable price is VND 1,500 million.
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 Taxable price – Type 7

 For goods and services with payment documents showing VAT-

inclusive payment prices, such as stamps, freight or fare tickets or
construction lottery tickets, their VAT-exclusive prices shall be
determined as follows:

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Taxable price – Type 8

 For casino, prized video game or betting game services, taxable

prices are excise tax-inclusive sums of money earned from these
activities minus prizes paid to customers. The taxable price shall
be calculated according to the following formula:

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 Taxable price – Type 8

Example:
In a tax period, a casino service establishment records the following
figures: cash amount collected from customers for token exchange at
counters before playing games: VND 43 billion. Cash amount paid to
customers for tokens returned after playing games is VND 10 billion.
Calculate the tax payable of this company.

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Taxable price – Type 9

 For tourist services in the form of tours under contracts signed

with tourists at package prices (inclusive of meal, accommodation
and travel), these package prices are regarded as VAT-inclusive
prices.
 In case the package price covers also air fares for tourists coming
from abroad into Vietnam and from Vietnam to abroad, expenses
for meals, lodgings and sight-seeing and some other expenses
incurred abroad (if with lawful receipts), sums of money collected
from tourists to cover these expenses may be subtracted from
taxable prices (turnover).

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 Taxable price – Type 9

Example 1:

Hanoi Tourist Co. performs a contract for taking tourists from Vietnam
to China on a five-day tour at the package price of $400/person. If it
has to pay a Chinese tourist company $300/person

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Taxable price – Type 9

Example 2:
The HCMC Tourist Company performs a package tour contract with
Thailand for 50 tourists for 5 days in Vietnam with a total payment of
$32,000. The Vietnamese side has to pay for airfares, meals,
accommodation, and sight-seeing tours under the agreed program, of
which airfares from Thailand to Vietnam and vice versa cost $10,000.
The applicable exchange rate is 22,000VND/USD.

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 Taxable price – Type 10

 For pawning service, taxable prices are amounts to be collected

from this service, including interests receivable from pawn loans
and other proceeds from the sale of pawned articles (if any).
 For VAT-liable books sold at their distribution prices (cover
prices) under the Publication Law, these sale prices shall be
determined as VAT-inclusive prices for calculating selling
establishments’ VAT and turnover.
 For printing activities, taxable prices are printing costs.

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Tax rate – 0%

The tax rate of 0% is applicable to:

1. exported goods and services
2. construction and installation of works of export processing
enterprises
3. goods sold to duty-free shops
4. international transportation
5. exported goods and services not liable to VAT

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 Tax rate – 0%

Cases ineligible for the tax rate of 0% include:

 Offshore re-insurance; offshore transfer of technologies or
intellectual property rights; offshore capital transfer, credit provision
or securities investment; derivative financial services; international
post and telecommunications services.
 Petrol and oil which are purchased at home and sold to automobiles
of business establishments in non-tariff zones.
 Automobiles sold to organizations and individuals in non-tariff
zones.
 Services provided by domestic business establishments to
organizations and individuals in non-tariff zones but performed and
used outside these zones, such as lease of houses, meeting halls,
offices, hotels, warehouses…
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Tax rate – 5%

Tax rate of 5% is applicable to the following goods and services:

 Clean water for production and daily life.
 Fertilizers; ores used for fertilizer production; insecticides,
pesticides and growth stimulants for livestock and plants.
 Feeds for cattle, poultry and for other livestock.
 Services of digging, embanking and dredging canals, ditches.
 Cultivation, husbandry, aquatic and marine products which are
unprocessed or have been preliminarily processed by cleaning,
sun-drying, heat-drying, peeling, pitting, slicing, grinding,
freezing, salting or other ordinary methods of preservation at the
trading stage.
 Preliminarily processed rubber latex .
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 Tax rate – 5% (cont.)

Tax rate of 5% is applicable to the following goods and services:

 Fresh and raw foods; forest products, except for timber, bamboo
shoots not yet processed at the trading stage.
 Sugar and by-products in sugar production.
 Products made of jute, rush, bamboo, rattan, leaves…
 Specialized machinery and equipment for agricultural production.
 Medical equipment and instruments.
 Teaching and learning aids.
 Cultural, exhibition, physical training and sport activities; art
performances; film production; film importation, distribution and
screening.
 Children’s toys.
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Tax rate – 10%

The tax rate of 10% is applicable to goods and services not

specified in above sections.

Notes:
 The above VAT rates are applicable uniformly to each type of goods or
services at the stages of importation, manufacture, processing and
trading.
 An establishment that trades in many kinds of goods or provides many
kinds of services subject to different VAT rates shall declare VAT at the
VAT rate prescribed for each good or service. If this establishment
cannot identify different tax rates for its goods or services, it shall
calculate and pay tax at the highest tax rate applicable to goods or
services it manufactures, trades in or provides..

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 Summary about Tax Rate of VAT
0% This rate applies to exported goods/services including
goods/services sold to overseas/non-tariff areas and consumed
outside Vietnam/in the non-tariff areas, goods processed for
export or in-country export (subject to conditions), goods sold to
duty free shops, certain exported services, construction and
installation carried out for export processing enterprises, aviation,
marine and international transportation services.

5% This rate applies generally to areas of the economy concerned

with the provision of essential goods and services. These include:
clean water; teaching aids; books; unprocessed foodstuffs;
medicine and medical equipment; husbandry feed; various
agricultural products and services; technical/scientific services;
rubber latex; sugar and its by-products; certain cultural, artistic,
sport services/products and social housing.

10% This "standard" rate applies to activities not specified as not-

subject to VAT, exempt or subject to 0% or 5%.
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VAT calculation method

The tax credit method (deductible method)

Applies to business establishments that fully observe the
accounting, invoice and document regime under the law on
accounting and keeping of invoices and documents and register to
pay tax by the tax credit method

The method of tax calculation directly based

Applied to business individuals and households that fail to observe
or inadequately observe the accounting, invoice and document
regime prescribed by normal laws and Investment law; and trading
in gold, silver, gems and foreign currencies

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 The tax credit method

 Determination of payable VAT amount

In which:
• The output VAT amount is equal to the total VAT amount of goods
sold or services provided indicated on value added invoices.
• The input VAT amount is equal to total VAT amount indicated on value
added invoices for purchased goods or services (including also fixed
assets) used for the production of and trading in VAT-liable goods and
services.

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The tax credit method

 Determination of creditable input VAT

• Input VAT on goods or services used for the production of and trading
in VAT-liable goods and services may be wholly credited.
• For goods or services used for the production of and trading in both
goods or services liable and not liable to VAT, only the input VAT
amount on goods or services used for the production of and trading in
VAT-liable goods or services is creditable.
• Input VAT on fixed assets used for the production of and trading in
both goods and services liable and not liable to VAT may be wholly
credited.
• Input VAT on purchased goods or fixed assets which are lost or
damaged due to natural disasters, fires or unexpected incidents is not
creditable.
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 The tax credit method

 Determination of creditable input VAT (cont.)

• Input VAT on goods (including also goods purchased from outside or
goods manufactured by enterprises themselves) used by enterprises
for sales promotion or advertisement in various forms to serve the
production of and trading in VAT-liable goods and services is
creditable.
• If business establishments detect some invoices or VAT payment
vouchers not yet declared for input VAT credit, they may make
additional declaration and credit. The time limit for additional
declaration and credit is 6 months from the month when missing
invoices and vouchers are detected.

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The tax credit method

 Determination of creditable input VAT (cont.)

• Business establishments may either account non-creditable input VAT
amounts as expenses for enterprise income tax calculation or include
them in the historical costs of fixed assets under law.
• Conditions for input VAT credit are specified as follows:
a. Having lawful value added invoices.
b. Having vouchers of via-bank payment (except ≤ VND 20 million)
• In case a good or service valued at less than VND 20 million is
purchased from a supplier several times a day with a total purchase
value of more than VND 20 million, VAT will be credited only when
via-bank payment vouchers are available.

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 Method of calculation of VAT directly
on the basis of added value

 Determination of payable VAT amount

The payable VAT amount by the method of tax calculation
directly on the basis of value added is equal to the added value of
the taxable goods or service multiplied by VAT rate applicable to
that goods or service.
In which:
• The added value of a goods or service is equal to the payment price
of the goods sold or the service provided minus the payment price of
the corresponding goods or service purchased.
• Payment price of a goods sold or service provided is the actual sale
price stated in the goods or service sale invoice.
• Payment price of a goods or service purchased is equal to the VAT-
inclusive value of the purchased or imported goods or service.
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Method of calculation of VAT directly

on the basis of added value

 Determination of payable VAT amount

For business establishments that sell goods or provide services and have
sufficient invoices for all sales under regulations or satisfy all conditions
for determining exact turnover from the sale of goods or services under
contracts and payment vouchers but have insufficient invoices on
purchase of input goods or services, the value added shall be determined
to be equal to the turnover multiplied by the ratio (%) of the value added
to the turnover.
The ratio (%) of the added value to turnover to serve as a basis for
determining the value added is specified as follows:
• Commercial activities (goods distribution and supply): 10%.
• Services and construction (except for construction with the contracted
supply of materials): 50%.
• Production, transportation, services associated with the supply of
goods, construction with the contracted supply of materials: 30%.
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 VAT Refund from 01.01.2016
1. Exporters having excess input VAT credits over VND300 million. The refunds
are provided on a monthly or quarterly basis, in line with the VAT declaration
period of taxpayers. The amount of input VAT relating to export sales (meeting
the criteria for VAT refunds) that can be refunded to a taxpayer must not
exceed 10% of its export revenue. VAT refunds are not available to companies
which import goods and then export them without further processing.
2. New projects of companies adopting VAT deduction method which are in the
pre-operation investment phase and have accumulated VAT credits over
VND300 million. Exceptions include conditional investment projects which do
not satisfy the regulated investment conditions, or investment projects of
companies whose charter capital has not yet been contributed as regulated.
3. Liquidation, bankruptcy, changes in the ownership of the companies, changes
in the company form, merger, consolidation, demerger, division.
4. Certain ODA projects, diplomatic exemption, foreigners buying goods in
Vietnam for consumption overseas.
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Place for tax payment

 Taxpayers shall make VAT declaration and payment in localities

where they conduct production or business.
 Taxpayers that declare and pay VAT by the credit method and have
dependant accounting production establishments located in
provinces or centrally run cities other than those where they are
headquartered shall pay VAT both in localities where their
production establishments are located and localities where they are
headquartered.
In case dependant production establishments fail to conduct cost-accounting
activities, taxpayers at headquarters shall pay VAT equal to 2% (for goods subject
to the VAT rate of 10%) or 1% (for goods subject to the VAT rate of 5%) of VAT-
exclusive turnover of products they produce or products of the same category in
localities where they are located. VAT amounts already paid by taxpayers for their
dependent accounting production establishments will be cleared against their
payable VAT amounts in localities where they are headquartered.
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 Problem 1
• On December 2010, Vinh Hien Company, a exporting and
importing firm, imported a package of goods that contained 10
cars (4 spaces) at the cost of 15.000USD/car/CIF.HoChiMinh.
• After that, this entity sells all above cars to the consumers at the
cost of 850.000.000 dong/car (excluded VAT).
• Noted that the import tax rate of car is 70 percent. The excise tax
rate is 50 percent and VAT rate is 10 percent. The exchange rate
is applied on 21.000 VND/USD.
Required: Calculate total amount of indirect tax payable of Vinh
Hien Co.

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Problem 2
• Van Thien Company and Hai Khoa Company are the organizations that
conduct the business in manufacturing the wine.
• On May 2011, Van Thien Co. sells 40.000 liters of white wine over 40O to
Hai Khoa Co. A non-VAT selling price is 8.500 dong/liter.
• Hai Khoa Co. uses 80 percent of white wine for producing 60.000 liters
wine for medical purposes and packed in the 750ml shaped bottles. This
firm sells 15% of medical-purpose wine for Truong Son Supermarket
based on exported contract. The selling price is 46.000 dong/bottle. The
remaining is sold to Minh Man Co. at the cost of 48.000 dong/bottle.
• The remaining of white wine is sole to Dong Quang Co. at the cost of
9.000 dong/liter (excluded VAT).
• Noted that excise tax rate of white wine is 65 percent, medical-purpose
wine is 20%. Total input VAT that based on invoices is 158.000.000 dong.
Required: Calculate excise tax payable and VAT payable of Hai Khoa Co.
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