I.

Definition and History of value-added tax laws in Vietnam

1. Definition

- Value-added tax (VAT) is an indirect tax which is charged at the time of consumption of
goods and services and is levied when a value has been added over various stages of
production/ distribution right from the purchase of raw materials till the final products are
sold to the retail consumers. It is a multipoint tax. To understand what this means,
consider a production process (e.g., take-away coffee starting from coffee beans) where
products get successively more valuable at each stage of the process. When an end-
consumer makes a purchase, they are not only paying for the VAT for the product at hand
(e.g., a cup of coffee), but in effect, the VAT for the entire production process (e.g., the
purchase of the coffee beans, their transportation, processing, cultivation, etc.), since
VAT is always included in the prices.
- Value-added tax is a modern tax that has been studied by economists since the 1920s. But
until 1954, the method of tax collection on the added value of new goods was first
applied in France. Since 1968, France has expanded its application to the service sector.
Because the levy does not cause duplication of taxation, this tax is applied by many
countries. In 1977, the European Union issued Resolution No. 06 on perfecting the
mechanism for collecting value-added tax and considering its application as a condition
of community participation. Currently, about 120 countries and territories have applied
this tax.

2. History of development of value-added tax laws in Vietnam

- In Vietnam, before 1990, when the central planning economy was built, the Revenues tax
was applied, but it showed discrimination between economic sectors and had many
disadvantages.
- Firstly, the taxable revenue is determined to be the total revenue generated from each
stage of production and circulation. Therefore, the more intermediaries the goods have,
the greater the amount of revenues tax on the goods. This has violated the principle of
avoiding multiple taxation.
- Secondly, the revenues tax rate is also very complicated, making it difficult to apply and
prone to many legal violations.
- In the late 1980s, recognizing the limitations of the revenues tax and learning from the
experience of many countries in the world on value added tax, Vietnam has implemented
research and application of this tax. In 1993 and 1994, Vietnam has piloted the
application of value added tax to some enterprises operating in certain fields. With the
successes gained from such experiments, on May 10, 1997, the IXth National Assembly
promulgated the Law on Value-Added Tax, which took effect from January 1, 1999.
From that, the Value-Added Tax has replaced the Revenues tax.
- The VAT law is enacted and applied in lieu of sales tax for three basic reasons:
 o The application of the law on value added tax addresses the situation of
superposition of taxes through the stages of goods circulation;
o Applying a value-added tax law with a simple tax rate provision, ensuring a
relative level of simplicity and neutrality of the tax;
o The Law on Value Added Tax provided that the conditions and methods of tax
calculation not only create a stable source of revenue for the budget, ensure
equality of taxpayers' obligations but also a measure to combat frauds and tax
evasion in all stages of the production and circulation of goods.
- The 1997 Value-Added Tax Law which is applied over many years and amended twice
times (in 2003 and 2005) had shown its active role in the implementation of the state's tax
policy. However, in the context of the economy continues to transform strongly,
integration is deeper and wider, The 1997 Value Added Tax Law and the Laws
Amending and Supplementing the Value Added Tax Law still show some limitations.
The National Assembly promulgated the Law on Value-Added Tax in 2008 with certain
changes to improve the law.
- Currently, there are two documents regulating the value-added tax law, the 2008 Value-
Added Tax Law and Decree No. 123/2008 / ND-CP detailing and guiding the
implementation of a number of articles of the Law on Value-Added Tax.

III
1. Positive effects of VAT on Vietnam's economy:

a) The role of VAT in goods circulation:

The revenue tax law stipulates that the accrued turnover is the basis for the
implementation of the tax collecting regime. The State levies taxes on the entire accrued
turnover of products through from each shift from production, circulation to
consumption. The more taxable products and goods have passed the stages, the more tax
the State will collect over the stages, so the application of turnover tax results in a
overlapping tax situation for the taxable revenue in previous stage. This is unreasonable,
affecting negatively on the production and circulation of goods. With the advantage of
VAT, the State only collects taxes on the added value of products at each stage of
production and circulation, but does not collect taxes on the whole accrued turnover. If
there are no events of financial, monetary, production and circulation fluctuations,
weakness, economic recession and other causes, the application of VAT instead of
revenue tax will not affect the prices of consumer products, on the contrary, the prices
more reasonable and more accurate because of the avoidance of overlapping taxes.
According to research and counts of the World Bank (WB) and the International
Monetary Fund (IMF), most countries including Vietnam after applying VAT, the prices
of goods and services have not changed or only changed a negligible percentage and the
production level of enterprises, the consumption level of the people did not decrease, or
only decreased a small percentage in the first period, inclusive cases of increasing VAT
rates with a number of goods in periodic adjustments. Thus, we can conclude that VAT is
not a factor causing inflation, makes the difficulty for the development of production and
circulation of goods, on the contrary, the application of VAT has contributed to
stabilizing prices, expanding goods circulation, contributing to promoting development of
production and boosting exports.
b) The role of VAT in state economic management:
Tax is a very important tool for the State to perform the function of macro management
for the economy. The economy of our country is in the operating process according to the
market mechanism with the state management, so VAT plays a very important role and is
expressed as follows:
 VAT is an indirect tax and is widely applied to all organizations and individuals
consuming products or services, so that it creats a large and relatively stable
source of income for State budget.
 Taxes are calculated on the selling price of goods or services, so they do not have
to consider and analyze the reasonableness of expenses, making managing
organization collect easier than direct taxes.
 Export goods, not only do not pay VAT, but are also deducted or reimbursed the
input VAT, thus reducing costs, boosting exports, create conditions for export
goods to compete favorably in the international market.
 VAT along with import tax increases the cost price of import goods, has positive
effects of protecting domestic production and trading.
 VAT usually has few tax rates, ensuring simplicity and clarity. With few tax rates,
this tax is neutral, because it basically does not intervene deeply into the goal of
encouraging or restricting production, business of services and consumption.
 Strengthening the accounting work and promotion of goods trading with invoices
and vouchers, calculating of the output tax deducted by the input tax is an
economic measure that helps push both buyers and sellers to perform the invoice
and voucher regime better.
 The tax deduction that paid at the input also has the effect of encouraging
modernization and specialization of production, increasing investment in new
equipment to lower production costs.
 VAT is promulgated stick with the amendments and supplements to some other
taxes, such as special consumption tax, import-export tax,.. contributing to the tax
policy system of Vietnam is more and more completed, consistent with the
movement and development of the market economy.
Generally, among indirect taxes, VAT is considered to be the most advanced
collecting method nowadays, which is highly evaluated because of reaching the major
goals of tax policy, such as creating a large source of State revenue. However, in the
 first period, the application of VAT has accrued some difficulties and obstacles and
our State has gradually removed step by step those difficulties in process of
implementing the VAT Law.
c) Encouraging investment, promoting production and business development:
The VAT implementation facilitates the cost of basic construction projects, decreased
10% than before, and all VAT of capital construction works are separately accounted
and not included in the price works like sales tax, so asset depreciation costs also fall.
Businesses that buy fixed assets with VAT are either deducted or refunded.
Implementing VAT also promotes business production and circulation of goods
because VAT only collects the added value of goods and services through production,
circulation to the final consumption stage with 2 tax calculation method: deduction
method and direct method, has promoted industrialization and production
cooperation, especially in the field of mechanical production.
d) Encouraging exports, protecting domestic production and restructuring the
economy:
To encourage export, the majority of exported goods are applied to 0% of the tax rate.
Together with export measures such as allowing domestic production enterprises to
export directly, setting up export support fund. The implementation of the VAT law
has the most obvious effect, directly to encourage export.
The VAT levies on imported goods together with the import tax contributes to the
effective protection of domestic production is a very important measure. The
implementation of the VAT law, which contributes to restructure the economy is
shown on every side: rationalizing and reducing the tax rates, from there requiring
and encouraging businesses to trade effectively operate, achieve and exceed the
average profit of society. No longer duplicating taxes as before, encouraging the good
production and trading that Vietnam has strengths such as: agricultural products,
forest products, seafood and handicrafts due to the deduction of 5% when buying
these items. In case of exported agricultural, forestry if there is input VAT, they will
be refunded.
e) Organizing well business accounting management
Due to the requirement of input VAT deduction, businesses have been steped up on
implementing better the opening accounting books, managing records and using
invoices and vouchers.
f) Increasing budget revenues, and both in scale and density as well.
Implementing VAT after more than 10 years, has proved to be an important tax,
accounting for a large proportion - about 20% of total taxes and fees in total budget.
Along with other taxes, VAT has contributed to complete of the State budget revenue
estimates, ensuring the country's regular spending needs.
Summary of tax density