Indirect taxes are one of the most important taxes in the financial system of Vietnam. This is a type of tax where the payer is not the taxpayer, but the tax burden is transferred to consumers through the price of goods and services. This article will help you understand the concept, characteristics, role as well as the classification of indirect taxes according to the provisions of Vietnamese law, including: Value Added Tax (VAT), Special Consumption Tax (SCT), Export and Import Tax, Environmental Protection Tax and Resource Tax.
See more articles at: VAT Overview – MAN
What is indirect tax?
Indirect tax is a type of tax where the taxpayer is not the ultimate tax payer. In other words, this tax is transferred from the payer to the consumer of goods and services through the selling price.
With this mechanism, consumers are the ones who bear the tax burden through businesses and production and business establishments paying taxes on their behalf. Indirect taxes are often added directly to the selling price of goods and services and are collected when consumption occurs.
The characteristic of indirect taxes is that they are easier to adjust up or down than direct taxes, so in many countries, this type of tax is increasingly valued, becoming an important tool in regulating consumption and generating budget revenue.
See more articles at: What is indirect tax? Some types of indirect tax according to current regulations?
Difference between indirect tax and direct tax
In the tax system, indirect taxes and direct taxes are often mentioned together, but their nature is very different. Direct taxes are taxes in which the payer is also the taxpayer, such as personal income tax and corporate income tax. In contrast, indirect taxes are levied on consumers through the prices of goods and services, while producers and businesses only play the role of collecting on behalf of the State.
This difference makes indirect taxes have a wider scope of regulation and are easier to manage, while direct taxes clearly demonstrate more fairness to each individual and organization.
Characteristics and role of indirect taxes
Characteristics of indirect taxes
Indirect tax is a type of tax in which the payer and the tax bearer are not the same. Enterprises and production and business organizations fulfill their obligations to declare and pay taxes to the State, but this tax cost is added directly to the selling price of goods and services. The final consumer is the one who bears the burden through paying the price including tax.
Another outstanding feature is that indirect taxes are collected through prices, making them very convenient for management and limiting tax evasion. In addition, this tax has a wide scope of adjustment, applying to almost all types of goods and services circulating on the market, from essential to non-essential.
The role of indirect taxes
Indirect taxes play an important role in generating large and stable revenue for the State budget. The proportion of indirect tax revenue in total budget revenue in Vietnam and many other countries is always high, contributing to ensuring national financial balance.
In addition to its revenue-generating function, indirect taxes are also a tool for managing and regulating social consumption. By imposing high taxes on discouraged goods such as tobacco, alcohol, gasoline, etc., the State guides consumer behavior to be more in line with community interests. At the same time, low or preferential taxes on essential goods and export goods encourage production and market expansion.
Indirect taxes also contribute to maintaining social equity according to the principle of “those who consume more pay more taxes”. Each person will contribute to the State budget according to their level of consumption of goods and services. This mechanism is both fair and helps the State have tools to stabilize the macro economy and orient long-term development.
Advantages and disadvantages of indirect taxes
Advantages of indirect taxes
Indirect taxes have the great advantage of being easy to collect, with little leakage, and are suitable in the context of an economy with many small-scale producers and businesses. This type of tax also helps the State regulate consumption and encourage social behavior according to policy goals.
Limitations of indirect taxes
However, indirect taxes also have certain limitations. Because taxes are added directly to the price of goods and services, the burden often falls on consumers, especially low-income groups. This can reduce the fairness of the tax system and requires a reasonable balancing mechanism.
Indirect taxes under Tax Law 2024
Indirect taxes in Vietnam are currently applied in many different forms, each with its own regulatory objectives. The 2024 Tax Law has specifically regulated indirect taxes to ensure revenue for the budget, while also guiding consumption and production behavior in society. Below are the important indirect taxes currently applied.
Value Added Tax (VAT)
VAT is the most common indirect tax today. According to the 2024 VAT Law, this tax is levied on the added value in the production, circulation and consumption of goods and services. Consumers will bear this tax through the tax-inclusive price when purchasing goods. VAT not only ensures a large source of revenue for the State budget, but also encourages transparency in business activities and limits tax losses.
Special consumption tax (SCT)
Special consumption tax is an indirect tax applied to a group of goods and services whose consumption the State wants to limit, such as tobacco, alcohol, gasoline, large-capacity cars, and games with prizes. The main purpose is to regulate social consumption behavior, while increasing budget revenue from high-demand but discouraged goods. According to the Law on Special Consumption Tax, this tax also contributes to the orientation of sustainable economic development.
Export and import tax
Import tax is a form of indirect tax applied to goods entering and leaving Vietnam. Law on Export and Import Tax 2024 According to regulations, this tax not only generates revenue but also protects domestic production, encouraging domestic enterprises to improve their competitiveness. In addition, flexible tax policies are also a tool to regulate the trade balance, control trade deficit and support the international economic integration strategy.
Environmental protection tax
Environmental protection tax is also classified as an indirect tax. This is a tax levied on products that have a negative impact on the environment such as plastic bags, gasoline, coal, pesticides, and herbicides. According to the Law on Environmental Protection Tax, the purpose of this tax is not only to increase the budget but also to guide consumer behavior, encourage the use of environmentally friendly products, and contribute to ensuring sustainable development.
Resource tax
Resource tax is applied to the exploitation of natural resources such as oil and gas, minerals, coal, and groundwater. This is an indirect tax to ensure that national resources are not exploited indiscriminately, while also creating revenue for the budget to reinvest in environmental protection and community development activities. Law on Natural Resources Tax 2024 Specify tax rates for each type of resource.
| TYPE OF INDIRECT TAX | APPLICABLE SUBJECTS | TARGET | NOTE |
| VAT | Domestic and imported goods and services | Create stable income, promote economy | Law No. 48/2024/QH15 |
| Special consumption tax | Wine, beer, cigarettes, luxury cars | Consumption regulation and social influence | Regularly updated scope |
| Import and export tax | International trade goods | Protect domestic production, coordinate trade | As a tool of tariff policy |
| Environmental tax | Gasoline, oil, coal, plastic bags | Promote green consumption, reduce pollution | Sustainable Promotion |
| Resource tax | Minerals, natural resources | Resource exploitation management, environmental protection | Record the exploitation of real value |
Practical application and new points in the 2024 Tax Law related to Indirect Tax
New points in Tax Law 2024 related to Indirect Tax
The 2024 VAT Law brings many important changes that directly impact the way indirect taxes are applied in Vietnam. The notable new point is the expansion of the scope of non-taxable entities and the application of preferential tax rates, helping businesses and consumers reduce the cost burden.
Another important content is the extension of the tax rate reduction policy from 10% to 8% for some groups of goods and services. This policy is expected to be maintained until the end of 2026, aiming to stimulate consumption and support economic recovery after a difficult period.
The law also adds more detailed regulations on conditions for tax deduction and refund. Exporting enterprises need to prove with contracts, customs declarations and bank payment documents to apply the 0% tax rate. This regulation helps to make indirect tax management more transparent, reducing fraud and budget losses.
In addition, Law 2024 clarifies cases where the 0% tax rate is not applied, such as reinsurance services, transfer of intellectual property rights abroad or consumer services in Vietnam. This provision contributes to tightening business activities and ensuring fairness among indirect taxpayers.
Practical examples of Indirect Taxes
A practical example of indirect tax is when a business sells a phone for 10 million VND, they have to add 10% of VAT, making the selling price to the consumer 11 million VND. The business is responsible for declaring and paying 1 million VND in tax to the State, but in fact the consumer is the one who bears the tax because this amount has been added to the product price. This case shows that indirect tax is collected through the business, but the ultimate burden falls on the buyer of the goods and services.
Solutions to help businesses comply with and optimize indirect tax obligations
To comply effectively, businesses need to regularly update new tax policies, especially regulations related to indirect taxes such as: VAT Law 2024. Applying accounting and tax management software will help automate processes, reduce errors and save time.
In addition, cooperate with professional consulting units such as MAN – Master Accountant Network is the optimal solution. MAN supports businesses from looking up tax rates, preparing reports, to handling tax risks. Thanks to that, your business both ensures compliance and optimizes legal financial obligations.
Contact information:
- Company: MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Hotline: 0903 963 163 – 0903 428 622
- E-mail: man@man.net.vn
International experience in applying indirect taxes in Vietnam
International experience shows that indirect taxes, especially value-added tax (VAT), play a central role in the fiscal policies of many countries. Currently, more than 170 countries apply VAT and this source of revenue accounts for about 20% of total global tax revenues. In Europe alone, VAT contributes 15.71% of the budget and is equivalent to about 7.21% of GDP., becoming an important tool to ensure a stable source of income.
In OECD countries, VAT accounts for an average of 6.71% of GDP and contributes 20.21% of total tax revenue. Switzerland is a prominent example, with VAT accounting for 32.91% of federal revenue, the highest in the country’s budget structure. This shows that indirect taxes not only generate large revenues but also help maintain fiscal balance.
The trend of increasing VAT revenue is also evident in the Asia-Pacific region. The OECD report notes that VAT revenue here will increase by 0.4% of average GDP in 2023, thanks to a strong recovery in international tourism and trade in services. This is evidence that indirect taxes are able to quickly reflect economic fluctuations.
However, the collection efficiency is still limited. Actual revenue ratio index The VAT Revenue Ratio in OECD countries averages only 0.55, meaning that 45% of VAT revenue is lost due to exemptions, fraud or ineffective administration. This poses a major challenge for future indirect tax policy reform.
Lessons from developed countries show that indirect taxes are both a stable source of revenue and an effective economic management tool. The experiences of the EU, Japan and Canada demonstrate that transparency, a wide tax coverage and a strict management mechanism are the decisive factors in the successful application of indirect taxes.
Conclude
Indirect tax is a type of tax where the taxpayer is not the ultimate tax payer. This tax is added indirectly to the price of goods and services, so the consumer is the one who actually bears the burden.
In Vietnam, indirect taxes such as VAT, special consumption tax, import-export tax, environmental protection tax and resource tax contribute to the about 45 - 50% total budget revenueThis shows the important role of indirect taxes in maintaining fiscal stability and supporting economic development.
VAT Law 2024 and related documents have been amended and supplemented to increase transparency, fairness and support businesses in complying with tax obligations. These new regulations also help limit fraud, revenue loss and create a healthy business environment.
However, indirect taxes also pose issues of social equity. Applying a uniform tax rate can easily create a burden on low-income groups. Therefore, appropriate exemption and adjustment policies are necessary to both ensure revenue and support social security.
In that context, businesses need to proactively update legal regulations, apply taxes correctly, and take advantage of tax deduction and refund benefits. This is a way to both comply with the law and improve operational efficiency.
