CHAPTER II

COMPONENTS OF TAX LAW

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 OUTLINE

I. Components of tax

II. Tax Principles

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I. Components of tax

1. Name
2.Taxpayer

3. Taxable
4. Tax rate
object

5. Tax
incentives/Tax
break

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 I. Components of tax
1. Name
- Concise, easy to remember, reflect the goal of the tax
- Used to distinguish and basically tell us the content of the tax
Question:
+Income tax for high-income individuals or personal income tax?

2.Taxpayer
- Taxpayer: An individual or entity that is obligated to pay taxes, it is clearly
stated in specific tax laws.
- It should be distinguished from:
+ Taxable object: taxable activities, taxable product/service
+ Tax bearer: shoulderer of tax burden

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 Vietnam: VAT taxpayers

Taxpayers include organizations and individuals producing or trading in

goods or services subject to value-added tax (below referred to as business
establishments) and organizations and individuals importing goods
subject to value-added tax (below referred to as importers).
(Article 4, VAT law 2008, amended and supplemented in 2013, 2014, 2016)
 Vietnam: SCT taxpayers

• Excise taxpayers include producers and importers of

goods and providers of services which are subject to
excise tax.
(Consolidation document 02/VBHN-VPQH dated April 28, 2016)
 US: Taxpayer Bill of Rights

Each taxpayer has a set of fundamental rights they should be aware

of when dealing with the IRS.
1.The Right to Be Informed
2.The Right to Quality Service
3.The Right to Pay No More than the Correct Amount of Tax
4.The Right to Challenge the IRS’s Position and Be Heard
5.The Right to Appeal an IRS Decision in an Independent Forum
6.The Right to Finality
7.The Right to Privacy
8.The Right to Confidentiality
9.The Right to Retain Representation
10.The Right to a Fair and Just Tax System
 New Zealand Taxpayers' Union

They represent the common interests of all taxpayers and aim to

become New Zealand's largest union. They
promote sensible restraint of government expenditure by:
• Scrutinizing government spending;
• Publicizing government waste;
• Arguing for an end to corporate and union welfare; and
• Promoting efficient tax system.
 I. Components of tax

3.Taxable object
+ Taxable objects (taxable activities, taxable
product/service, taxable income)

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 I. Components of tax

4. Tax rates
Absolute Relative

Fixed

Progressive Full
Partial

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 I. Components of tax

4. Tax rates
Absolute/Specific rate: Absolute Relative

+ Fixed: A specific Fixed

amount of money
that does not change Progressive Full
with value; Partial

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 Example 1
The import tax rate for used cars with less than
5 seats applies a fixed absolute tax (April 2008).

Cylinder capacity Tax rate/piece (USD)

Under 1.000 cc 3.000
1.000 – 1.500 cc 7.000
1.500 – 2.000 cc 9.000
2.000 – 2.500 cc 13.500
2.500 – 3.000 cc 15.000
3.000 – 4.000 cc 18.000
4.000 – 5.000 cc 26.400
Over 5.000 cc 30.000

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 I. Components of tax

4. Tax rates
Absolute/Specific rate:
+ Progressive: fix a Absolute Relative
specific amount but Fixed
vary with the value of
the taxable objects; Progressive Full
+ For example: license Partial
tax in Vietnam.

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 Example 2
License tax in Vietnam for individual business
households using progressive absolute tax rates

Tier Income/month (VND) Tax rate/year (VND)

1 Over 1.500.000 1.000.000

2 Over 1.000.000 – 1.500.000 750.000
3 Over 750.000 – 1.000.000 500.000
4 Over 500.000 – 750.000 300.000
5 Over 300.000 – 500.000 100.000
7 equal to or less than 300 50.000

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 I. Components of tax
4. Tax rates
Absolute/Specific rate:
+ Fixed: does not change with
value; For example, used car
import tax rate. Absolute Relative
+ Progressive: fix a specific
amount but vary with the Fixed
value of the taxable objects;
for example license tax in
Vietnam. Progressive Full
Partial
+ Advantages: stabilizing the
amount of tax collected into
the budget; pre-determining
the payable tax amount; Easy
collection, avoid tax fraud
+ Cons: Doesn't reflect price
movements
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 I. Components of tax
4. Tax rates
Relative:
+ Fixed rate (%): fixed by
percentage on taxable objects Absolute Relative

Fixed
+ For example: VAT rate, SCT,
import-export tax, etc.)
Progressive Full
Partial

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 I. Components of tax
4. Tax rates
Relative:
+ Progressive rate: a percentage rate (%) on the
value of taxable object, increasing
gradually according to the value of the Absolute Relative
taxable object.
Fixed
Two types: Fully progressive and partially
progressive.
Progressive Full
✓ Full progressive: increasing tax rates on all Partial
value of taxable objects, rarely used at
present. For example, the tax rate of 1983
in Vietnam (for income up to 500
VND/month, the tax rate for the service
industry is 16%, up to 1,000 VND/month,
the tax rate is 15%)…

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 Example 3
Corporate income tax applied to industrial and commercial
households, using the fully progressive tax rate (in 1983)

Tier Taxable profit/month (VND) Tax (%)

1 Up to 5.00 12

2 Up to 1.000 15
3 Up to 1.500 18

4 Up to 2.000 22

5 Up to 2.500 26

7 Up to 3.000 30

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 4. Tax rates
Relative tax rate
✓ Partial progressive: the tax rate increases by each part of the taxable
object. Example: PIT schedule in Vietnam (effective January 1, 2009).
Calculate tax payable if taxable income is 32 million VND/month?
Tier Taxable income/year Taxable Tax (%)
(million dong) income/month
(million dong)
1 Up to 60 Up to 5 5
2 Over 60 to 120 Over 5 to 10 10
3 Over 120 to 216 Over 10 to 18 15
4 Over 216 to 384 Over 18 to 32 20
5 Over 384 to 624 Over 32 to 52 25
6 Over 624 to 960 Over 52 to 80 30
7 Over 960 Over 80 35
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Partial and full progressive tax rates Income = 20 million

Totality partial
0-5 tr 5% 5 million 250 k

5-10tr 10% 5 million 500 k

10-18tr 15% 8 million 1.2

million
18- 32tr 20% 2 million 400k

total 20tr x 20% = 2.35

4 million million

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Equity
Principles of tax rate setting

Two principles of tax rate setting:

- Tax rates should be reasonable so that taxpayers feel less burden of tax
- The tax rate must bring about maximum tax collection productivity,
without hindering the stimulation of socio-economic development.
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 5. Tax incentives/Tax break

• Tax exemption (or non-taxable)

• Tax deduction

• Tax refund
 5. Tax incentives/Tax break

• Tax exemption (or non-taxable)

An amount of money that can be taken off someone’s

income or a company’s profits before the tax owed is
calculated

Example: PIT, the law allows taxpayers to claim

exemptions that reduce their taxable income. Both personal
and dependent exemptions lower the amount of your
taxable income. That ultimately reduces the amount of total
tax you owe for the year
 5. Tax incentives

• Tax deduction
Tax deductions are expenses that can be
subtracted from gross income to reduce taxable
income

• Example: CIT, the law allow deductible costs

and expenses of the company to deduct when
calculating the taxable income
 5. Tax incentives

• Tax refund
A tax refund is a reimbursement to a taxpayer of
any excess amount paid to the government

Example: as VAT law, the government will refund

VAT for the company if the amount of input VAT
excess the output VAT in the tax year
 II. Tax Principles

Vietnam: some principles:

Fair
- In terms of finance: the most important tool to
- Horizontal fairness generate budget revenue

- Vertical equity - In economic terms: the State's macroeconomic

management and regulation tools for production
Clear, transparent
and business activities
Effective - Socially: taxes must implement social justice
- In terms of revenue: the tax calculation method
Flexible
must be simple, easy to understand, easy to
calculate, easy to check

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 The Principles (by IMF, OECD, UN)

1. Make public a statement of all tax incentives for investment and

their objectives within a governing framework.

2. Provide tax incentives for investment through tax laws only.

3. Consolidate all tax incentives for investment under the authority of

one government body, where possible.

4. Ensure tax incentives for investment are ratified through the

law-making body or parliament.

5. Administer tax incentives for investment in a transparent manner.

 The Principles (by IMF, OECD, UN)

6. Calculate the amount of revenue forgone attributable to tax incentives for

investment and publicly release a statement of tax expenditures.

7. Carry out periodic review of the continuance of existing tax incentives

by assessing the extent to which they meet the stated objectives.

8. Highlight the largest beneficiaries of tax incentives for investment by

specific tax provision in a regular statement of tax expenditures, where
possible.

9. Collect data systematically to underpin the statement of tax

expenditures for investment and to monitor the overall effects and
effectiveness of individual tax incentives.

10. Enhance regional cooperation to avoid harmful tax competition.

 Questions
(20 minutes)

1. How do tax policies benefit the

Enterprises/Cooperatives in Vietnam in the
context of Covid-19? And what should be
improved more?
2. What should Vietnam learn from other countries
in in term of using tax policy and instruments to
support the Enterprises/Cooperatvies and
recover the economy during and after the Covid-
19?