What is the tax burden?

Tax burden is the total amount of tax levied on residents of a country in the form of income tax, corporate tax, sales tax, etc. An excessively high tax burden might lead to tax evasion or aggressive tax avoidance strategies, as businesses seek ways to minimize their tax liabilities. This can have a cascading effect on government revenue collection and business operation activities. Find out with S4B what is the tax burden and analysis of tax burden in vietnam.

1. Tax burden

1.1 Concept

Tax burden is the total amount of taxes levied on residents of a country in the form of income tax, corporate tax, sales tax, etc.

When we divide the total tax rate by the gross national product (T/Y), we get an indicator that reflects the overall tax burden. Note that this is the average tax rate (t) in the economy. Currently, for example, the Vietnamese government collects about 22% of national income in the form of taxes (t=22%). This implies that every dollar of national income is subject to an average tax rate of 22 cents.

(References: Nguyen Van Ngoc, Dictionary of Economics, National Economics University)

A balanced tax burden, when appropriately managed, can contribute to a stable economy

1.2 Example

For example, in the case of a consumption tax, the producer of the good is the person in contact with the agency that collects and pays the tax to this agency. They are the ones who bear the original tax burden. But this tax is included in the sale price of the goods. Therefore, the person who actually bears this tax is the consumer. They are the ultimate burden of tax. Indirect taxes are taxes where the initial tax burden and the final tax burden differ. As for direct taxes, since the taxpayer and the taxpayer are one, there is only one tax burden in Vietnam.

2.  Tax burden analysis

Tax burden analysis is the work of analyzing which taxable population groups in society suffer more from the enactment of a tax. Tax burden analysis was first conducted by agrarian economists in France. However, it was not until after the Second World War that this work became an area of study that attracted the participation of many economists.

With taxes with progressive tax rates, the person with more income or more assets is taxed more. As for taxes with a regressive tax rate, the person with less income or wealth is taxed more. To evaluate the distribution of tax burden in vietnam among population groups, economists calculate the real tax rate (also called effective tax rate, real tax) for each group according to the following formula:

Real tax rate = 100% × (Total tax payable/Total taxable income)

The higher the tax rate, the more tax you pay. If a tax gives a higher real tax rate to a lower-income population, that tax violates the principle of tax fairness.

3. Benefits of market participants

It doesn’t matter whether the goods tax is levied on the seller or the buyer in an item. When a tax is levied on buyers, quantity demanded shifts down by a corresponding amount, when it is levied on sellers quantity supplied shifts up by a corresponding distance.

In both cases, when the tax is implemented, the price paid by the buyer increases and the price received by the seller decreases. After all, sellers and buyers share the same tax burden no matter how it is levied.

(References: Textbook of Development Economics, Financial Publishing House)

We are aware that in cases where both the buyer and the seller are affected by a tax, they often attempt to shift the tax responsibility onto the other party. The tax burden in vietnam, which refers to the negative impact of the tax on their respective interests, becomes significant when it worsens their overall situation. The degree to which this burden is transferred depends on how they respond to the change in price.

tax burden in vietnam

Complying with complex tax regulations demands time and resources.

>>>Read more: Addressing Vietnam Tax Penalties

4. The Ministry of Finance has a new solution to reduce the financial burden on businesses

In order to reduce the financial burden and tax burden in vietnam on businesses, the Ministry of Finance proposes to waive late payment interest arising in 2022 and 2023 of taxes, land use fees, and land rents for enterprises and development organizations. incurred a loss in the tax period of 2022.

According to experts, the solution to exempt money from late tax payment for production and business enterprises with losses is like a “lifesaver” to help businesses overcome difficulties. Because of the fact, the loss in the past year of many companies was mainly due to the objective context when the world market fluctuated strongly, the impact from the military conflict between Russia and Ukraine caused orders to plummet. Not to mention, lending interest rates are at a high level, causing many businesses to fall into a state of capital shortage. Until now most companies are still facing a series of difficulties.

In addition to the above solution, recently, the Ministry of Finance proposed to reduce by 50% the collection of a number of fees and charges in the securities sector, fees for appraisal and grant of international travel service business licenses, and fees for granting accommodation. Citizen fees…

Mr. Dau Anh Tuan, Deputy General Secretary, Head of the Legal Department of the Vietnam Confederation of Commerce and Industry (VCCI), said: “The Government has some solutions to relax tax burden in vietnam, reduce value-added tax and property tax to support businesses in difficult times.Each ministry and branch also needs to review to propose more exemptions and reductions of fees in their respective areas.This spirit needs to be implemented proactively, across all fields”.

The above is detailed information about the analysis of  tax burden in vietnam, if you have questions or need help with tax burden in vietnam or accounting and tax consulting service, you can contact S4B


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