What Are Taxes?

DEFINITION

Taxes is a compulsory, non-reimbursable revenue of the State for organizations and individuals to meet the spending needs of the State for the common good. Revenue from taxation can be used to fund government budgets, pay for the construction of roads and schools, and support public welfare programs.

Key Takeaways

  • Taxes are payments collected by the government.
  • Paying taxes is mandatory and failing to do so can result in penalties.
  • Taxation is a necessary premise to maintain political power and perform state functions and tasks.
  • Taxes are based on the actual situation of the economy (GDP, consumer price index, producer price index, income, interest rate,…).
  • Taxes are carried out on the principle of non-direct refund mainly.

How Taxes Work

Taxes work by allowing government entities to collect payments from individuals and businesses to generate revenue. Money raised from taxes then is used to fund government operations and public service programs.

Note

Payment of taxes is mandatory, not optional. Taxpayers who engage in tax evasion are subject to fines and criminal penalties

The government that imposes each tax has a particular set of laws governing the amount and collection of that tax. Those laws and the type of tax determine how different tax systems work. 

That said, some key concepts generally apply across tax systems, such as:

  • Tax base: The items or activities subject to a tax
  • Tax rate: The percentage of a taxpayer’s tax base that is used to calculate the taxpayer’s tax liability
  • Tax return: A form or series of forms filed by taxpayers with the government imposing the tax on which a taxpayer’s tax liability is calculated and tax payments are reconciled.

For example, the tax base for personal income tax is a taxpayer’s taxable income. Personal income tax is a direct tax, that is, it is calculated based on the taxpayer’s income after deducting tax-free income and family deductions in accordance with the Law on Personal Income Tax with relevant documents and instructions. The tax bracket you land in determines how much tax you pay. Someone who files single and earns more than 18 million but 32 million or less, for instance, would be in the 20% tax bracket for the 2022 tax year.

Note

The tax return that most individual taxpayers use to file is Form 01/ĐNHT.

Types of Taxes

There are different types of taxes a government can impose. Here are some of the key types of taxes you might expect to pay during your lifetime.

Personal Income Tax

Personal Income taxes are taxes assessed on the wages and salaries of employees. Personal income tax is a direct tax, that is, it is calculated based on the taxpayer’s income after deducting tax-free income and family deductions in accordance with the Law on Personal Income Tax.

Pursuant to Article 2 of the Law, the 2012 Amendment of Personal Income Tax stipulates that taxpayers include the following two groups of subjects:

  • Resident is an individual who has a permanent residence/house in Vietnam with the term of the lease contract from 183 days or more in the tax year or an individual with a regular place of residence, present in Vietnam for 183 days or more in a calendar year.
  • ases of applying PIT calculation of resident individuals are:
  • Individuals signing labor contracts of 03 months or more,
  • Individuals who sign a labor contract of less than 3 months or do not sign a labor contract.
  • A non-resident individual is a person who does not meet the conditions of a resident individual and is determined to be a non-resident individual who is usually a foreigner working in Vietnam.

NOTE

Deductions include:

Family circumstance deduction for taxpayers themselves is 132 million VND/year, equivalent to 11 million VND/month and 4.4 million VND/month for each dependent.

Deducting insurance contributions, charitable contributions, study promotion, humanitarian and voluntary retirement funds.

Corporate Taxes

Corporations must pay taxes out of their profits to the government. Corporate entities have an opportunity to offset the amount of tax owed by claiming deductions for eligible expenses. For example, if a restaurant invests money in purchasing a food truck to help expand its clientele, it generally would be able to deduct the cost of the truck and the materials required to stock it.

The corporate tax rate is 20%.

Value-added Tax

Value-added tax is a tax added to the selling price of goods and services in the order and paid by consumers when using those goods and services.

Objects subject to value-added tax are goods and services used for production, business and consumption in Vietnam. Value-added tax payers are all organizations and individuals engaged in the production and trading of goods and services subject to value-added tax in Vietnam and other organizations and individuals that import goods and services. goods subject to value added tax.

The normal value-added tax rate is 10%, but there are goods subject to 5%, 0% tax rates.

Business-license Tax

Annually, the State collects license tax at the beginning of the year for the purpose of capturing and making statistics of individual business households, enterprises, private companies, cooperatives and other economic organizations. License tax is recognized in business administration expenses.

Level 1: The registered capital is over 10 billion VND, the license tax for the whole year is 3,000,000 VND.

Level 2: Registered capital is from 5 billion to 10 billion VND, the license tax rate for the whole year is 2,000,000 VND.

Level 3: Registered capital from 2 billion to less than 5 billion VND, license tax for the whole year is 1,500,000 VND.

Level 4: Registered capital is less than 2 billion VND, license tax for the whole year is 1,000,000 VND

Special Consumption Tax

Is an indirect tax calculated on the selling price excluding excise tax on certain items that enterprises produce or collect on the import price and import tax on some imported goods. Taxable objects: business services, a number of products and some imported goods under the provisions of the Law on Special Consumption Tax.

Taxpayers: those dealing in services, products and goods subject to excise tax. Each item subject to excise tax is only subject to one time tax. For imported goods that have already paid excise tax on imports, they do not have to pay excise tax when they are sold.

Import and Export Tax

A direct tax, charged directly on the value of imported and exported goods. Taxable objects are import and export goods of domestic and foreign economic organizations that import and export across Vietnam’s border. Taxpayers are all organizations and individuals that import and export goods on the list of goods subject to import and export tax.

Resource tax

Is a type of direct tax charged on the use of natural resources, natural resources owned by the entire people prescribed by the State. Taxable objects are metallic minerals, coal, peat, petroleum, gas, natural minerals, natural aquatic products and other natural resources such as natural building materials. Taxpayers are organizations and individuals exploiting natural resources for production and business contracts. House and land tax, land rent means that all organizations and individuals that have the right to use residential land or land for construction of works must pay house and land tax. All organizations and individuals that lease land use rights from the State must pay land rent according to regulations. The basis for tax determination is according to the price bracket prescribed by the State.

Registration tax

All cases of transfer of ownership or use of real estate, means of transport, etc. must pay registration tax. The registration tax payable when transferring the ownership of any property is recorded as an increase in the historical cost of that property. It can be easily understood that, when someone wants to register the ownership of their property, they will usually have to pay an additional fee called a registration fee to the agency that they go to register. For example, when you buy a motorbike, you are required to pay a registration fee to be able to register vehicle ownership.

Compare listings

Compare