Chapter 1 overview

1.      Tax classsification

·         Based on ways to levy:

-          Direct tax: is a tax that is directly imposed on income and property and it id paid by the taxpayer direct to the gov. eg: CIT, capital gains tax, land tax

-          Indirect tax: is a tax that is not directly imposed on income and property and it is not paid by the taxpayer direct to the gov but is collected by suppliers, shopkeepers, stores… eg: VAT, excise duty, consumption tax.

·         Based on bases of taxes:

-          Income tax: is a tax that its base is income. Eg: CIT, PIT

-          Property tax: is a tax that its base is property’s value. Eg: land tax, house tax, register tax, inheritance tax

-          Consumption tax: is a tax that its base is the value of the commodities sold from sellers, shopkeepers to the consumer. This kind of tax is also called sales tax for it is charged as a percentage of the price of goods and services. Eg: VAT, turnover tax, excise duty

·         Based on the proportion btw tax and income

-          Progressive tax: is a tax that makes the percentage of tax to the taxpayer’s income increase as the taxpayer’s income increases. It is the result of the way to tax according to which a tax is charged at an increasing rate as the taxable income increases. Progressive tax means that the burden of taxes put more on the rich than the poor. Eg: PIT

-          Regressive tax: is a tax that makes the percentage of a tax to the taxpayer’s income reduce as the taxpayer’s income increases. It is the result of the way to tax according to which a tax is charged at a reducing rate as the taxable income increases or at a proportional rate on the price of goods or services. Burden of taxes put more on the poor than the rich. Eg: VAT, excise duty

-          Proportional tax: is a tax that the percentage of tax to the taxpayer’s income doesn’t change as the taxpayer’s income increases. It is charged at a rate that doesn’t change as the taxable income or taxable amount of value of property increases. Eg:CIT

·         Based on the power to levy:

-          Federal taxes (state tax or central tax): is a tax that is levied by the federal gov and is paid to the budget of the federal gov.

-          Local taxes: is a tax that is paid to the budget of local authority. The list of local taxes and the ceiling tax rates are stipulated by the federal gov. the local authority has the right to choose a rangr of taxes among the list of the local taxes and to define the rate provided . it is not higher than the ceiling rate. Eg: property tax such as land tax, house tax, natural resource tax…

-          They only exist in a country that tax autonomy if given to the local authority

2.      Basic elements of a tax law

-          Name of a tax: show taxes’ contents, purposes or characteristics. Eg: VAT implies that this tax charges only on the value added of goods, excise duty implies that this tax only levies on certain special commodities.

-          Taxpayers: this element states in a certain circumstance stipulated in a tax law who has to pay that tax. Taxpayer is the one who has to legally declare anf pay taxes. In other words, taxpayer is any person or org liable by law to pay a tax or taxes. Taxpayer also means the person on whom tax burden falls

-          Tax base: is the amount of income or property or goods, or the amount of value of property or goods on which a tax is imposed. It shows what a taxpayer is liable to pay tax on

-          Tax rate: is a quantity showing how much a tax is paid on a certain amount of a tax base

Based on form: specific and ad-valorem rate:

Specific rate is the one shown in the form of a specific amount normally of money liable to be paid in a physical unit of a tax base. Eg: the agricultural land use tax in vietnam is charged based on the amount of rice per hectare of land.

Ad-valorem rate is the rate shown in the form of a percentage on a monetary unit of a tax base. Eg: VAT in VN is charged at 3 rates: 0, 5, 10 on the added value of goods

Based on the ways of taxation:single specific rate, proportional rate and progressive rate and regressive rate

Single specific rate is a rate that remains unchanged regardless the amount of tax base. Eg: the poll tax in VN in the 1930s which was charged as Dongduong dong per capital

Proportional rate is the one that is charged at a fixed percentage on any variable amount of a tax base. It is an ad-valorem rate that remains unchanged as the amount of income or value of property or goods increases. Eg: CIT in thailand 2007 is charged at a standard rate of 30%. This rate is applies to any amount of the taxable income of a company

Progressive rate is the one that is charged at an increasing percentage as the amount of tax base increases. Simple progressive tax table is the one that each increasing rate applies to a certain amount of a physical unit of a tax base. Eg: import duty on second-hand cars in Vn which is charged at certain US dollars per car, and as the bigger the capacity of an engine is, the higher the rate will be. Marginal progressive tax table is the one that each higher rate is only applicable to a respective increase of bracket of income or value of property. It doesn’t apply to lower brackets of income or value of property which are charged by lower rate accordingly. The tax paid by a taxpayer os the total amount of all rate.

-          Incentives: are used to achieve gov’s social or economic targets. 5 types of incentives:

Exemption: if the taxpayer is exempt from a tax, he or she is free from having to pay that tax. No time limit to this incentive.

Tax holiday: in some cases, the tax  amounts are only reduced partly, normally 50% and the reductions or exemption only apply for a period of time

Preferential rates: the taxpayer enjoys a lower rate than the common rate applied to others. The low rate can be applied in a period of years or in the lifetime of the project

Tax credit: taxpayer doesn’t have to pay a tax amount for the current year but that amount of tax will be paid in the following years. Eg: accelerated depreciation and tax refund for reinvested income

Double deduction: the taxpayer enjoys a double deduction for an expense. Eg: in some countries, research expense is accepted to deduct twice. The result of this incentive is the taxpayer enjoys a reduction in income tax

-          Procedure: includes some issues such as forms of tax returns, procedures and due time for declararion and payment, taxpayer’s obligations and rights, and the obligations and rights of tax office and other relevant persons and orgs

-          Punishment: fines- a sum of money paid as a punishment- are applied to those who are found guilty of breaking the tax law including the following actions: late payments, late declaration, tax evasion… where the tax evasion is regarded as criminal, the evader is not punished by the tax law but by the criminal code.