REPLACEMENT OF SALE TAX BY COST TAX FOR EFFICIENT TAXATION IN VIETNAM AND OTHER DEVELOPING COUNTRIES
Loi, Ta Van, School of trade & international economics, National economics university of Hanoi, Tran Dai Nghia str., Hanoi, Vietnam, 84903434688, loitv@neu.edu.vn;taloiktqd@yahoo.com.vn.
I. INTRODUCTION
Almost every country in the world applies sale tax or VAT in their tax system. There are a many reasons why governments get fewer taxes than they should in this system. In USA the government applies “sale tax”.Retailing companies collect sale tax from the client but the government is not sure to get the same tax amount collected from the customers. Each year the loss is estimated to be about a hundred billion dollars of sale tax on remote sale such as internet sale, mail order, telephone sale..., reported by Peter franchot (2011)-Maryland remote sale tax loss study. Europe uses Value Added Tax (VAT). In Europe, the VAT’s avoidance is estimated to be about 107 Billion € in 2006.
In Vietnam, the situation of VAT implementation is really bad. In 2009, the VAT avoidance is about 442.3 Billion VN Dong. More than 607 companies in the nation involved in problems with VAT, 63 companies among them simply disappeared. Government tries to get tightly tax control the tax collection with a huge tax collection team. The expenditure for tax collection is so much but the results are not very good.
It is about time to think about new tax law. This paper recommends –Cost tax instead of sale tax in The USA or Value added tax in other countries. Author believes that Cost tax will do better job at tax collecting and other goals achieved by efficient tax collection system. Because the Cost tax will companies to control their cost in order to reduce tax burden. This will result in lower cost of doing business. Lower costs will make companies to become stronger competitors and increase their ability to effectively compete in the global market –With low cost countries like China.
In The USA, the Sale tax applied in 50 states instead of Value added tax. Sale Tax only pays an attention retail sale group in collecting sale tax. Under sales tax system, the situation of tax avoidance still happens when the company hides the profits in business. The tax rate of profit is about 35% while tax rate of sale is only 9% or little more. It quite easy to avoids income tax by declaring high production cost and avoid sale tax through remote sale. Tax loss seems to be an overlapping issue.
In others countries which use Value added tax (VAT) faces the same tax loss issues. It is not the remote sales but it is hidden revenue. Companies do not have to control the expenses very carefully. They would like to hide the profit by higher production cost declaration.
Replacement value added tax by cost tax for efficiency taxation of Vietnam and other developing countries