Chapter 2: Consumption tax

2.4 Value added tax

 2.4.1 . Overview of VAT
Definition
A value-added tax (VAT) is a consumption tax levied on
products at every point of sale where value has been
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added, starting from raw materials and going all the way to
final retail purchase. Ultimately, the consumer pays the
VAT; buyers at earlier stages of production receive
reimbursements for the previous VAT they've paid.
• a general tax that applies, in principle, to all
commercial activities involving the production and
distribution of goods and the provision of services.
• a consumption tax because it is borne ultimately
by the final consumer. It is not a charge on
businesses. 3

• charged as a percentage of price, which means

that the actual tax burden is visible at each stage in
the production and distribution chain.
• collected fractionally, via a system of partial
payments whereby taxable persons (i.e., VAT-
registered businesses) deduct from the VAT they
have collected the amount of tax they have paid to
other taxable persons on purchases for their
business activities. This mechanism ensures that
the tax is neutral regardless of how many
transactions are involved.
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• paid to the revenue authorities by the seller of the

goods, who is the "taxable person", but it is actually
paid by the buyer to the seller as part of the price. It
is thus an indirect tax.
3. Pros and cons
Pros:
• Be based on consumption, and thus provide a stable
revenue base;
• Be “neutral,” since it would be imposed on all types of
businesses;
• Provide stronger incentives for businesses to control
costs; 5

• Encourage, or at least not discourage, savings;

• Have the potential for raising large amounts of revenue at
a low tax rate;
• Be simple to administer;
• Reduce obstacles to exports, under certain conditions;
• Help bring about a better balanced tax system.
Cons

• Increasing costs for business owners throughout the chain of

production.
Because VAT is calculated at every step of the sales process,
bookkeeping alone results in a bigger burden for a company,
which then passes on the additional cost to the consumer. It
becomes more complex when transactions are not merely local,
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but international. Different countries may have different

interpretations on how the tax is calculated. This not only adds
another layer to the bureaucracy, it can also result in unnecessary
transaction delays.
• Tax evasion can still continue, even be widespread, if the
general public does not give it its wholehearted support. Smaller
businesses in particular can evade paying VAT by asking their
customers if they require a receipt adding that the price of the
product or service being purchased is lower if no official receipt
is issued.
• In the country like U.S., a federal VAT could also create
conflicts with state and local governments across the country,
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which currently set their own sales taxes at varying rates.

• Critics also note that consumers typically wind up paying higher
prices with a VAT. While the VAT theoretically spreads the tax
burden on the added value of a good as it moves through the
supply chain, from raw material to final product, in practice the
increased costs are typically passed along to the consumer.
4. BASIC CONTENT OF TAX POLICY

LEGAL DOCUMENTS
❑Law on value added tax No 32/2013/QH13
❑Decree No. 146/2017 ND-CP amending and
supplementing the curent value added tax
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❑Decree No. 121/2011/ND-CP, ND 123/2008, ND

118/2008
❑Circular No. 06/2011/TT-BTC, Circular No.
65/2013/TT-BTC, Circular No. 141/2013/TT-BTC,
Circular No. 83/2014/TT-BTC
A. TAXPAYERS

Taxpayers include:
• Organizations and individuals producing or trading in
goods or services subject to value-added tax.
• Organizations and individuals importing goods
subject to value-added tax

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B. TAXABLE OBJECTS
Goods and services used for production, trading or
consumption in Vietnam are subject to value-
added tax, (including goods and services
purchased from overseas organizations and
individuals), except those not liable to VAT

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C. NON-TAXABLE OBJECTS: 26 groups
1. Products of cultivation and husbandry, cultured and fished
aquatic and marine products which have not yet been
processed into other products.
• Products preliminarily processed by ordinary methods are
those which have only been cleaned, sun-dried, heat-dried,
peeled, pitted, cut, salted, frozen or otherwise ordinarily
preserved.
2. Animal breeds and plant varieties,
3. Water irrigation and drainage;
4. Salt products made from seawater, natural rock salt, refined
salt and iodized salt,

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5. State-owned houses sold by the State to current tenants.
6. Transfer of land use rights.
7. Insurance including life insurance; human health and
accident insurance; student insurance and insurance
services related to humans; livestock insurance, crop
insurance and other agricultural insurance services;
reinsurance.
8. Financial activities:
9. Healthcare and animal health services, scence and
functional rehabilitation services for patients.
10. Public-utility post and telecommunications services and
universalized Internet services under the Government’s
programs;

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11. Public services on sanitation and water drainage in
streets and residential quarters; maintenance of zoos,
flower gardens, parks and street .
12. Maintenance, repair and construction of cultural, art and
public-utility works, infrastructure facilities and houses for
social policy beneficiaries funded with people’s contributions
and humanitarian aid.
13. Teaching and vocational training as provided by law,
including also teaching of foreign languages, informatics,
dancing, singing, painting, music, drama, circus, physical
training and sports; child nursing, and other job-training
activities aiming to train, retrain and raise educational level
or professional knowledge and skills.
14. Radio and television broadcasting funded with the state
budget.

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15. Publication, import and distribution of newspapers, magazines
and specialized bulletins, political books, textbooks, teaching
course books, …
16. Mass transit by bus and tramcar means public transportation of
passengers by bus or tramcar along specified routes within
provinces, urban centers and in their vicinities under the Ministry of
Transport’s regulations.
17. Goods which cannot be produced at home and are imported in
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some cases
18. Weapons and military equipment exclusively for defense and
security purposes.
19. Imported goods and goods and services sold to organizations
and individuals for use as humanitarian or non-refundable aid
20. Goods transported from a border gate to another or
transited through the Vietnamese territory; goods
temporarily imported for re-export, goods temporarily
exported for re-import; raw materials imported for export
production or processing under export production or
processing contracts signed with foreign parties.
21. Technology transfer under the Law on Technology
Transfer; assignment of intellectual property rights under
the Law on Intellectual Property. For technology transfer
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or intellectual property right assignment

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 used as substitutes for diseased
people’s organs
25. Goods and services of business individuals with an
average monthly income lower than the common minimum
salary level applicable to domestic organizations and
enterprises under the Government’s regulations on region-
based minimum salary levels applicable to employees of
companies, enterprises, cooperatives, cooperative groups,
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farms, households, individuals and other Vietnamese

organizations that employ laborers.
26. Some other goods and services
D. TAX PRICES AND TAX RATE
* Taxable prices
• For goods and services sold by production and
business establishments, the taxable price is the selling
price exclusive of VAT.
• For excise tax-liable goods and services, the taxable
price is the selling price inclusive of excise tax but
exclusive of VAT.

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• For environmental protection tax-liable goods, the
taxable price is the selling price inclusive of
environmental protection tax but exclusive of VAT; for
goods and services liable to both excise tax and
environmental protection tax, the taxable price is the
selling price inclusive of excise tax and environmental
protection tax but exclusive of VAT.
• For imported goods eligible for exemption from or
reduction of import duty, the taxable price is the import
price plus (+) the payable import duty determined at
the applicable duty rate after subtracting the exempted
or reduced amount.

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* Tax rates:
1./ The 0% tax rate applies to exported goods and
services; work construction and installation for
export processing enterprises; international
transportation; goods and services not liable to VAT
upon exportation,
• Exported goods include:
- Goods exported abroad, including entrusted
export;
- Goods sold into non-tariff zones under the Prime
Minister’s decisions; goods sold to duty-free shops;

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• Exported services include services provided directly to
overseas organizations or individuals or organizations or
individuals in non-tariff zones.
• International transportation covers transportation of
passengers, luggage and cargo on international routes
from Vietnam to overseas or vice versa or from an
overseas place to another, regardless of having means of
transport or not. In case a contract on international
transportation covers domestic routes, international
transportation also covers such domestic routes.

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2./ Tax rate 5%
• Clean water for production and daily life,
excluding bottled drinking water and other
beverages subject to the tax rate of 10%.
• Fertilizers; ores for fertilizer production; pesticides
and plant and animal growth stimulants.
• Feeds for cattle, poultry and other domestic
animals

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• Cultivation, husbandry, aquatic and marine
products which are unprocessed or preliminarily
processed by cleaning, sun-drying…
• Fresh and raw foods; forest products
• Sugar and by-products in sugar production.
• Specialized machinery and equipment for
agricultural production, including plowing,
harrowing, seedling-transplanting and seed-
sowing

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• Medical equipment and instruments, including
specialized machinery and instruments for
medical use.
• Teaching and learning aids, including models,
drawings, writing boards,…
• Cultural, exhibition, physical training and sports
activities; art performances; film production; film
import, distribution and screening.
• Children’s toys; books of various kinds,
• Scientific and technological services

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3./ Tax rate 10%:
• The 10% tax rate applies to remaining goods and
services
• The VAT rates apply uniformly to each type of
goods or services at the stages of importation,
manufacture, processing and trading.
Example: If garments are subject to the tax rate
of 10%, they are subject to this tax rate at all the
stages of importation, production, processing and
trading.

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E. TAX CALCULATION METHODS

For general business activities, VAT liabilities must be paid to local tax
authorities where general business activities take place. While for imported
goods, VAT liabilities will be collected by customs authorities upon
importation. There are two methods for VAT declaration:
(1) Credit method and
(2) Direct method.

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2./ Method of VAT calculation directly based on
added value
1. The method of VAT calculation directly based on added
value applies to:
a/ Business individuals and households that fail to observe
or fail to fully observe the accounting, invoice and document
regimes prescribed by law.
b/ Foreign organizations and individuals that conduct
business in Vietnam not under the Investment Law and
other organizations
c/ Entities trading in gold, silver and gems.

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 Tax refund
•
VAT refunds from the tax authorities can be granted in certain below-mentioned cases. In other cases,
the taxpayers will have to carry their outstanding input VAT (after offset their output VAT) forward to
next periods and offset against future output VAT.
• Exporters having excess input VAT creditable over VND300 million (subject to conditions & the capped
refundable amount) . ;
• Qualifed new projects of taxpayers who adopt VAT deduction method which are in the pre-operation
investment phase and have accumulated input VAT creditable over VND300 million; and
• Certain ODA projects, diplomatic exemption, foreigners buying goods in Viet Nam for consumption
overseas.
 Invoicing
•
From 1 July 2022, implementation of electronic invoices (e-invoices) is compulsory for all enterprises.
There are two types of e-invoices: e-invoices with verifcation code and e-invoices without verifcation
code
E-invoices with verifcation code
Enterprises and business organizations shall use e-invoices with verifcation code when selling their
goods/ services, regardless of the value of each sale, except for the certain cases where e-invoices
without verification code can be used.
E-invoices without verifcation code
Enterprises allowed to use e-invoices without verifcation codes from the tax authorities are those in
certain economic sectors such as electricity, petrol, telecommunication, transportation, credit
institutions, insurance, e-commerce, supermarkets, etc. as well as other companies which satisfy certain
conditions. Enterprises have to register and obtain pre-approval from the tax authorities.