TEST 2

Due date: 13:00 pm, 25/03/2024

Student’s full name: Đinh Phúc Uyên

Question1: Describe and explain the basic characteristics of Value added tax
(VAT) in Vietnam. Provide an illustrative example.
- Indirect tax levied on consumers of goods and services subject to VAT :
VAT is not directly paid by the consumer, but rather it's added to the price of
goods and services. Businesses collect VAT from consumers and then remit
it to the government.

- Collected only on the added value: VAT is only applied to the value added
at each stage of production and distribution. Imagine a product that costs $10
to manufacture and is sold to a wholesaler for $15. The VAT would be based
on the $5 increase in value, not the entire $15 price.
- The total tax collected at the stages is equal to the tax amount calculated
based on the selling price to the final consumer:

+ VAT is the only tax collected in small segments, during the production and
circulation of goods (or services) from the first stage to the consumer, when
closing an economic cycle. At the end of the production - business or service
provision cycle, the total tax collected at all stages will match the tax amount
calculated on the selling price of the goods or service to the final consumer.

+ VAT is borne by consumers, but is not paid directly by the consumer, but is paid
by the seller of the product (or service) to the treasury, because the selling price of
the goods (or service) includes tax. VAT. Because through each step, VAT has
been included in the price of goods and services by the seller, so this tax is fully
transferred to the final buyer or user of the service.

Example:
1. Indirect taxes:
For example: Company A produces and sells product B at a price of 100,000
VND/product. The value of purchasing raw materials to produce product B is
50,000 VND/product. Company A must pay VAT on the added value of 50,000
VND/product.
Consumer buys product B for 100,000 VND, including VAT of 10,000 VND.

2. Multi-stage calculation:
For example: Company A produces raw material C at a price of 50,000
VND/product. Company B buys raw materials C from Company A to produce
product D at a price of 100,000 VND/product. Company C buys product D from
Company B for 120,000 VND/product.
- Company A must pay VAT on the added value of 50,000 VND/product.
- Company B must pay VAT on the added value of 50,000 VND/product.
- Company C must pay VAT on the added value of 20,000 VND/product.
Question 2: Describe and analyze the roles of VAT in Vietnam. Provide an
illustrative example.
- State budget revenues: VAT is a significant source of income for the
Vietnamese government. Since it's applied throughout the supply chain, it
captures tax at each stage of production and distribution.
- Macro management tools of the State: guidelines for production and
consumption
Analyze:
- Efficiency: VAT is generally considered an efficient tax because it's collected
at each stage, reducing opportunities for evasion. However, complex rules
and exemptions can increase administrative burdens for businesses.
- Fairness: VAT can be regressive, meaning it disproportionately affects low-
income earners who spend a larger portion of their income on essentials.
The existence of reduced VAT rates for some necessities helps mitigate this.
- Economic Impact: By influencing consumer spending, VAT can be used as a
tool. The recent temporary reduction to 8% is intended to stimulate the
economy during challenging times.
Example:
+ VAT reduction: VAT exemption for essential items such as food, groceries,...
VAT on essential goods such as food is 0%.
+ Restrict imports and encourage exports: VAT on imported goods is higher than
on domestically produced goods. VAT on imported cars is 30%, while VAT on
domestically produced cars is only 10%.
+ Let's say you buy a new phone for 10,000,000 Vietnamese Dong (VND).
The VAT amount on the phone will be 8% of 10,000,000 VND, which is 800,000
VND.
So the final price you pay at the store will be 10,000,000 VND (phone price) +
800,000 VND (VAT) = 10,800,000 VND.
Question 3: Explain VAT applicable for exported and imported goods in
accordance with regulations. Provide illustrative examples for exported goods
and imported goods.
- Exported Goods: According to the provisions of the Law on Value Added
Tax 2008 (amended and supplemented in 2013, 2014, 2016), exported goods
and services are subject to a tax rate of 0%.
+ VAT Rate: Generally, exported goods are subject to a 0% VAT rate. This means
you don't pay any VAT when exporting goods from Vietnam.
+ Reasoning: The purpose of VAT is to tax domestic consumption. Since exported
goods leave the country and won't be consumed domestically, no VAT applies.
+ Example: Company A exports 1 ton of coffee for 15 million VND. The business
does not have to pay VAT for this shipment.
- Imported Goods: Pursuant to Circular 83/2014/TT-BTC guiding on how to
calculate VAT according to the list of goods.
+ VAT Rate: Imported goods are generally subject to the standard VAT rate of
10% (currently reduced to 8% until June 2024) upon import. This VAT is added to
the customs value of the imported goods. 5% discount: Some essential goods (such
as food, groceries, books, newspapers...). Tax exemption: Some cases according to
regulations (such as goods serving diplomatic work, gifts...)
+ Payment: The importer is responsible for paying the import VAT to Vietnamese
customs authorities at the time of import.

 Conditions for applying 0% tax rate:

a) For exported goods:

- Have a contract to sell and process exported goods; entrusted export contract;

- Have proof of payment for exported goods via bank and other documents as
prescribed by law;

- Have a customs declaration as prescribed in Clause 2, Article 16 of this Circular.

Particularly in the case of goods sold where the delivery and receipt point is
outside Vietnam, the business establishment (seller) must have documents proving
the delivery and receipt of goods outside Vietnam such as: purchase contract.
signed with the seller of goods abroad; goods sales contract signed with the buyer;
Documents proving that goods were delivered or received outside Vietnam such
as: commercial invoice according to international practices, bill of lading, packing
slip, certificate of origin...; Bank payment documents include: bank documents of
the business establishment making payment to the seller of goods abroad; Payment
documents via bank from the buyer of goods to pay the business establishment.

 Cases where the 0% tax rate is not applied:

- Reinsurance abroad; technology transfer, transfer of intellectual property rights

abroad; transferring capital, granting credit, investing in securities abroad;
derivative financial services; Postal and telecommunications services going abroad
(including postal and telecommunications services provided to organizations and
individuals in non-tariff zones; providing mobile phone scratch cards with codes
and numbers price sent abroad or brought into a non-tariff zone); Exported
products are natural resources and exploited minerals that have not been processed
into other products; cigarettes, alcohol, and beer imported and then exported;
goods and services provided to individuals not registered for business in the non-
tariff zone, except in other cases as prescribed by the Prime Minister.

- Gasoline and oil sold for cars of business establishments in the non-tariff zone
purchased domestically;

- Cars sold to organizations and individuals in the non-tariff zone;

- Services provided by business establishments to organizations and individuals in

the non-tariff zone include: renting houses, halls, offices, hotels, warehouses;
transportation services to pick up and drop off workers; Catering services (except
for industrial catering services and catering services in non-tariff areas);

- The following services provided in Vietnam to organizations and individuals

abroad are not subject to the 0% tax rate, including: Sports competitions,
performing arts, culture, entertainment, conferences, hotels , training, advertising,
travel and tourism; Online payment service; Services provided associated with the
sale, distribution, and consumption of products and goods in Vietnam.
  Cases eligible for VAT refund on imported goods include:

- Imported goods for domestic production or consumption

- Raw materials imported to produce exported goods but without previous orders.

- Paying the wrong tax amount or overpaying the tax amount due.

To qualify for a tax refund, businesses also need to meet the following conditions:

- The enterprise is legally granted a business license by a competent authority

- Enterprises register to pay VAT using the deduction method

- The enterprise has established accounting books, kept books and documents in
accordance with the law.

- Enterprises have accounts for bank deposits.

- Additional customs declarations, goods sales contracts, and goods processing

contracts may be needed in accordance with regulations.

 Cases where VAT on imported goods cannot be refunded

In some of the following cases, businesses will not receive a value-added tax
refund:

- Import goods, then export again

- Importing raw materials for export production according to previous orders

- Imported goods do not ensure sufficient documents according to regulations.

Conditions for deducting VAT on imported goods:
- According to Clause 10, Article 1 of Circular 26/2015-TT/BTC, the
conditions for deducting input VAT on imported goods are:
- Have a legal VAT invoice for purchased goods and services or VAT
documents for import.
- Have non-cash payment documents for purchased goods and services
(including imported goods).
So, the conditions for VAT deduction on imported goods need to be:
- VAT payment documents at import stage. (For example: payment slip to the
state budget, tax payment receipt at the port).
- Non-cash payment documents (eg: Bank subsidiary book, Debit note,
Payment order).
- Import customs declaration, contract.
Example:
- Company A imports mobile phones from China
- Company A is subject to VAT because this is the import of goods into
Vietnam.
- Phones are goods subject to VAT with a general tax rate of 10%.
- Company A is obliged to pay VAT on imported machinery shipments