15:10 , 15/02/2013
According to Article 2,VAT Law, value added tax is imposed on the added value of goods or services arising during the process from manufacture and distribution up to final consumption.
VAT is an indirect taxin which the taxpayerand the person bearing the tax burden are not the same. The person that consumes goods and/or service bears the tax burden (the buying price has VAT included), but the taxpayer is the seller or producer of goods or service. In principle, indirect taxes are imposed on everyone at the same rate, regardless of the income of the tax bearer, which means a high-income person and a low-income person have to pay the same amount of tax if they purchase the same goods or service. For example, in case a television set costs 2,000,000 Dongsexcluding VAT and VAT tax rate is 10%, so the amount of VAT equals 200,000 Dongs, so the total selling price will be 2,200,000 Dongs.
When buying a television set, everyone has to pay the same price of 2,200,000 Dongs, regardless of his/her income. He /she has actually paid 200,000 dongs of VAT, but he/she does not care, or even doesn’t know that he/she has paid tax.
VAT may be imposed on all stages of the production and distribution, but is imposed only on the amount of added value in each stage. The total amount of VAT which will be collectedby tax authority is exactly the same amount of tax calculated based on the selling price paid by the end consumer.
Value added is the new value/additional value created in the process from production to final consumption. The total added value in all stages is equal to the value added of the output when the goods or service is sold to the final consumer.
For example, Bim Son cement company sells cement to a material company at 800,000 Dongs/ton excluding VAT. The material company sells it to a private retailing company at 850,000Dongs/ton excluding VATand this retailing company sells to a consumer at 1,000,000 Dongs/tonexcluding VAT.
The VAT amounts will be calculated and paid by different parties as follows:
- Bim Son cement company: 800,000Dongs * 10% = 80,000Dongs
- The material trading company: 850,000Dongs * 10% = 85,000Dongs. But it has already paid 80,000 Dongsfor VAT, so that they can deduct 80,000 Dong as VAT input and have to pay 5,000Dongs.
- The company can deduct 85,000 Dong and has to pay 15,000Dongs for VAT.
So VAT is calculated on the added value as follows:
The added value arised from whole selling activity is 50,000Dongs, so the amount of VAT will be 5,000Dongs. The added value arised from retail selling activity is 150,000Dongs, so the amount of VAT is 15,000Dongs.
Therefore, the total VAT amount arised from production to final consumption will be 80,000 + 5,000 + 15,000 = 100,000Dongs/ton.