CHAPTER 1

AN OVERVIEW OF TAXATION AND

THE VIETNAMESE TAX SYSTEM AND
ITS ADMINISTRATION
Lecturer: M.S. Nguyen Thuy Trang
Faculty of Taxation and Customs – Academy of Finance
 CHAPTER LEARNING
OBJECTIVES

1. Understanding the overall function and purpose of

taxation in a modern economy

2. Define overall structure of Vietnamese tax system

3. Explain the difference between tax avoidance and

tax evasion.

4. The procedures of registration and the making of

returns

5. Penalties for non-compliance, under-declaration and

late tax payment.
1.1. THE OVERALL FUNTIONS
AND PURPOSES OF TAXATION

1.1.1. Concepts and characteristics of taxes

1.1.2. The objectives of taxation

1.1.3. Tax classification

1.1.4. Basic elements of a tax law

 1.1.1. Concepts and
characteristics of taxes
 Concepts of taxes

 Characteristics of taxes
 Concepts of taxes
Taxes are parts of
income which are
legally stipulated
and compulsorily
paid by citizens to
the government in
order to finance the
public expenditures
 Characteristics of taxation

Taxes are compulsory payments

Taxes are indirect compensation payments
Objectives of taxation

Generating the government’s revenue

Macroeconomic activities adjustment

Reducing the unfairness in income

distribution
 Objectives of taxation
 Generating the government’s revenues
Tax revenue is the core part of the government’s budget because tax
is compulsory and made by a wide range of payers whose incomes
are produced by their economic activities.
 Macroeconomic activities adjustment
- Taxes help to regulate the economic cycle
- Taxes help to balance the labor market and control inflation
- Taxes help to stimulate the economy to develop in accordance
with government’s directions.
- Taxes protect the domestic production
- Taxes correct problems caused by negative externalities
 Objectives of taxation

 Reducing the unfairness in income distribution

- By imposing high excise duty on luxurious goods.
- By applying a progressive income tax.
- Some tax incentives applicable to the poor
 1.1.3. Tax classification
Proportion of
Ways to levy Bases of taxes
tax to income

Direct tax Proportional Income tax

Consumption
Indirect tax Progressive
tax

Regressive Property tax

 1.1.4. Basic elements of tax
law
 Name of a tax: show their contents, purposes or characteristics

 Taxpayer: who has to pay that tax

 Tax base: what a taxpayer is liable to pay tax

 Tax rate: Specific rate, Ad valorem rate, Single specific rate,

Proportional rate, Progressive rate

 Incentives: Exemption, Tax holiday, Preferential rates, Tax credit,

Double deduction

 Procedures

 Punishment
 1.2. CHARACTERISTICS OF A
GOOD TAX SYSTEM

 Equity:

- The horizontal equity holds that tax treatment between those

who are on every aspect the same must be the same.

- The vertical equity insists that those who have more ability
have to pay more taxes.

 Efficiency:

- The low expense of the tax office in carrying out the

responsibility;

- The efficiency in preventing tax evasion and tax shelter.

 Characteristics of a good
tax system
 Stability: tax policy is closely related to the business
environment, it is required to be stable
 Adaptability: a tax system has to be constructed so as to be
automatically adaptable to the changes in socio-economic
situation of a country
 Transparency
- clarity – meaning only one way to understand a regulation,
- every rule is made publicly,
- no exception exists.
 1.3. PRINCIPLES OF TAXATION

 Benefit – received principle

The benefit received by the taxpayer is a result of the investment
of the government. Each citizen benefits differently from the
investment by the government => in order to achieve equity, the
weight of taxes should be related to the benefit enjoyed by each
taxpayer.
 Ability – to – pay principle
The tax burden should be geared directly to a taxpayer’s income
and wealth. This principle requires that the weight of taxes
should be related to the ability-to-pay of the taxpayer in order to
bring about equity of sacrifice.
 Principles of taxation

 Origin principle
Only applies to consumption taxation. a government
has power to levy on goods and services produced in
its country despite where they are sold and consumed.
 Destination principle
A government has power to levy on goods and
services sold and consumed in its country despite
where they are produced.
 Principles of taxation

 Source principle
An income or a property earned by a person or company is taxed
by the government of the country where it is earned despite the
residence state or the nationality of a taxpayer.
 Resident principle
Any person or company who is regarded by law to be a resident
of a country is taxed on worldwide incomes including both
incomes earned in the country where the taxpayer is liable to pay
and incomes earned overseas.
1.4. TAX AVOIDANCE AND
EVASION

Tax Tax
evasion avoidance

Illegal Legal
 1.5. OVERALL STRUCTURE OF
VIETNAMESE TAX SYSTEM

 Tax law system

- The National Assembly issues the Laws on different kind
of taxes.
- The Government issues Decrees detailing the
implementation of the Tax Laws.
- The Ministry of Finance issues Circulars guiding the
implementation of Tax Decrees.
- General Departments of Taxation/General Departments
of Customs issues Official Letter providing detail
implementation for particular cases.
 1.5. OVERALL STRUCTURE OF
VIETNAMESE TAX SYSTEM

Tax administration system

General Departments of Taxation and General Departments of
Customs are responsible for:
- supporting Ministry of Finance in formulation of tax policies;
- organizing the management of tax collection; and
- compliance enforcement.
1.5. OVERALL STRUCTURE OF
VIETNAMESE TAX SYSTEM
• Corporation Income Tax (CIT)
• Personal income tax (PIT)
• Value Added Tax (VAT)
• Excise duty
• Customs duty
• Agriculture land use tax
• Non-agriculture land use tax
• Severance tax
• Environmental Protection Tax
 1.6. THE SYSTEMS OF REGISTRATION,
THE MAKING OF RETURNS AND THE
PAYMENT OF TAX LIABILITIES

1.6.1. Tax registration

1.6.2. The submission of information and claims

1.6.3. The making of returns and the payment of tax

liabilities
1.6.1. Tax registration

Obligations

Tax
registration

Notification
Procedure
of changes
Tax registration obligations

 Organizations, households and individuals engaged

in production, business and provision of services or
goods;

 Individuals liable to pay personal income tax;

 Organizations responsible for withholding and

paying taxes on behalf of taxpayers;

 Organization authorized to collect fees;

Tax registration obligations
 Foreign organizations without the Vietnamese legal entity
status, foreign independent practitioners conducting
business activities in Vietnam in accordance with
Vietnamese law who earn incomes in Vietnam;

 Other organizations and individuals involved in tax-

related activities, such as: project management units, non-
business units, organizations and individuals that have no
tax liability but are eligible for tax refund or receipt of aid
goods from abroad;

 Other Organizations and individuals who have incurred

amounts payable to the State Budget
 Tax registration procedures

• Apply for a business license or a business

Case 1:
Establishe
certificate => Given an EIN (enterprise
d
enterprise
identified number) or a TIN (tax identified
s
operating
number)
under the
Enterprise
Law

• Register for tax with the tax office by filling

Case 2:
Enterprise in a set of forms within 10 working days
s that are
not from the date when: (7 cases – details in
establishe
d under textbook)
the Law
on
Enterprise
s
Notification of changes in tax
registration

• Within 10 days from

Date the date of the
occurrence of changes

• Depends on the information

changes
Dossier • Two compulsory documents: tax
registration adjustment form; a tax
registration certificate (original)
 1.6.2. The submission of
information and claims
Principles
- Taxpayers must fully and accurately provide information on the
tax return provided by the Minister of Finance and submit
adequate documents to the tax authority.
- Taxpayers must calculate the tax payable themselves, except
some special cases in which tax has to be calculated by the tax
authority.
- Taxpayers must declare tax at the local tax authority where their
headquarters are based except for those taxpayers that does
accounting mainly at the headquarters and has dependent units
in other provinces.
- Overseas entities who do not have the permanent
establishments in Vietnam but have electronic commerce, digital
business and other services in Vietnam must directly or authorize
representatives to apply for taxpayer registration, declare and
pay tax in Vietnam in accordance with regulations of the Minister
of Finance.
 1.6.2. The submission of
information and claims
 The deadline for submission of a monthly tax declaration dossier is
the 20th day of the month following the month in which the tax
obligation arises.

 The deadline for submission of a quarterly tax declaration dossier is

no later than the last day of the first month of the quarter following
the quarter in which the tax liability arises.

 The deadline for submission of an annual tax declaration dossier is

no later than the last day of the first month of the calendar year or
financial year following the year in which the tax liability arises.

 The time limit for submission of a tax declaration dossier for each
time of arising of a tax obligation is 10 days from the date the tax
obligation arises.
 1.6.2. The submission of
information and claims
 The time limit for submission of an annual tax finalization
dossier is no later than the last day of the 3rd month from the
end of the calendar year or financial year.

 The time limit for submission of a tax finalization dossier in

case of termination of operation, expiration of contract,
enterprise ownership transformation or reorganization is 45
days from the date of termination, expiration, transformation
or reorganization.

 Taxpayers shall calculate tax amounts payable into the state

budget and submit tax return by themselves (self-assessment)
 1.6.2. The submission of
information and claims

 For taxes to be declared on a monthly, quarterly or

yearly basis, if no tax obligation arises in a tax
period or taxpayers are currently eligible for tax
incentives, exemption or reduction, taxpayers shall
still submit tax declaration dossiers to tax agencies
within the set time limit, except for cases in which
activities that give rise to the tax obligation have
terminated and cases in which business operations
are suspended in certain circumstances
 1.6.2. The submission of
information and claims
 For taxes to be declared on a monthly or quarterly
basis, the first tax period is counted from the date of
commencement of activities that give rise to the tax
obligation to the last day of the month or quarter,
and the last tax period is counted from the first day
of a month or quarter to the date of termination of
activities that give rise to the tax obligation. The
annual tax period for corporate income tax or
royalty is counted according to the calendar year or
the fiscal year applied by taxpayers. The annual tax
period for other taxes is the calendar year.
 The making of returns and the
payment of tax liabilities

The tax payment deadline is the deadline for submission of the

tax declaration dossier. In case of submission of supplementary
tax documents, the tax payment deadline is the deadline for
submission of the erroneous tax declaration dossier.
1.7. TAX PENALTIES AND FINES

 Penalties applicable to late payment of tax

- If tax debt is incurred from 01 January 2015, late
payment interest is charged at 0.05% per day from the
deadline for paying tax.
- If tax debt is owned before 01 January 2015 but is not
paid after 01 January 2015, late payment interest shall
be charged in accordance with the prevailing Law on
Tax administration for the days before 01 January 2015
(i.e. 0.05% to the 90th day and 0.07% from 91th day
onwards), and in accordance with the 2014 Amended
Law on Tax Administration for the days after 01
January 2015 (i.e. 0.05% for each day of late tax
payment).
1.7. TAX PENALTIES AND FINES

 Penalties applicable to late payment of tax

- In case tax payer under-declared taxes for tax periods
before 1 January 2015 but self-identified and paid
additionally (or such under-declaration is identified by
the tax authority in their tax audit), the applicable rate
is 0.05% for each day of late tax payment.
- Since 1 July 2016, under the Law No 106/2016/QH13
on amending and supplementing some articles of the
Law on VAT, the Law on Excise duty and the Law on
Tax Administration, late payment interest is charged
at 0.03% per day from the deadline for paying tax.
1.7. TAX PENALTIES AND FINES

 Penalties applicable to false declarations leading to

a deficit in amount of tax payable or an excess in
amount of tax refunded

Must pay in full the shortfall or return the excess

amount of tax and shall be subject to a fine of 20% on
the shortfall of tax or excess amount of tax refunded
plus a fine for late payment on the shortfall of tax or
excess amount of tax refunded
1.7. TAX PENALTIES AND FINES

 Penalties applicable to acts of tax evasion or tax

fraud

Pay full the amount of tax payable pursuant to the

regulations and shall be fined an amount of up to three
times the amount of the tax evaded
 DISCUSSION QUESTIONS

1) Why, in the context of integration, the role of tax as

a tool to protect domestic production become
lessened?

2) What are the standards of a modern tax system?

Why sometimes in order to achieve the equity we have
to sacrifice the efficiency?