Accounting and tax regulations for household businesses.

Currently, the accounting regime applied to business households is implemented according to Decision No. 169/2000/QD-BTC dated October 25, 2009 and Decision No. 131/2002/QD-BTC dated October 18, 2002 amending and supplementing the accounting regime for business households.

The method for determining the value-added tax (VAT) payable by business households is as follows: if calculated directly on revenue, the VAT payable is determined by a percentage (x) of revenue; if using the lump-sum method, the VAT payable is determined by a percentage of the revenue of the lump-sum household.

In cases where a business household pays taxes using the lump-sum method and operates in multiple business sectors, the amount of tax payable is determined according to the proportion of the main business sector; for business households with annual revenue below the prescribed level, VAT is not required.

The accounting system applicable to household businesses was issued in 2000, before the Accounting Law came into effect (January 1, 2004). To date, after more than 15 years of implementation, several shortcomings have arisen. Specifically:

First, Regarding accounting for revenue and expenses, due to the accounting system predating the enactment of the Accounting Law and Accounting Standards, many regulations concerning revenue and expenses are no longer appropriate, such as:

(i) The accounting system for household businesses does not define the concepts of revenue and expenses, so the content and scope of revenue and expenses are not clearly defined;

(ii) The accounting system for household businesses does not address the timing of revenue and expense recognition and the method of determining expenses in cases where they are used for both business operations and household consumption, so the income used to calculate expenses in the period does not accurately reflect the tax obligations of the household business;

(iii) Issues regarding trade discounts, price reductions, promotions, etc., have not yet been raised for resolution.

Monday, Regarding invoices and supporting documents, regulations still require business households to use both mandatory and guidance documents, leading to inconsistencies among market participants in the use of invoices and supporting documents.

According to current regulations, business households paying flat-rate taxes are not provided with VAT invoices or regular sales invoices. When needed, these households must request regular retail invoices from the tax authorities, thus causing difficulties for both the business households and the buyers.

When issuing sales invoices, household businesses must immediately pay VAT and income tax based on the revenue recorded on the invoice, even though they have already paid a fixed monthly tax based on revenue. Therefore, there are no clear regulations on whether they are allowed to deduct this tax from their monthly fixed tax liability.

Tuesday, Regarding accounting records, the accounting system is regulated based on the VAT calculation method applied by the business household and the completeness or incompleteness of the supporting documents.

This regulation does not take into account the scale of operations or the amount of revenue generated during the tax period, leading to a situation where some businesses operate with large revenues but still apply the flat-rate tax because there is no recorded data in their accounting books.

According to Decision No. 131/2002/QD-BTC dated October 18, 2002, of the Ministry of Finance on amending and supplementing the accounting regime for household businesses, there are two categories of entities required to open accounting books. This regulation reveals the following shortcomings:

– In essence, a business household maintaining two accounting books is still subject to the same tax management as a fixed-rate tax system. The tax authorities can positively influence the tax declaration and payment process of the business household through operational measures, thereby determining the tax amount payable by the business household that closely reflects its business scale. With this management approach, record-keeping in accounting books is merely a formality and unnecessary.

- Household businesses managed under a fixed-rate tax system that maintain two accounting books are considered to have fully processed invoices and sales documents, accurately determining revenue. Therefore, tax management is based on the declared data of the household business, leading to the household business taking advantage of this to arbitrarily decide the amount of tax they want to pay.

– For businesses paying flat-rate taxes that use invoices, if the revenue shown on the invoices exceeds the monthly flat-rate revenue, the tax authorities will adjust the revenue. Therefore, the likelihood of businesses paying flat-rate taxes issuing sales invoices is limited.

For household businesses that maintain two accounting books and pay taxes based on the revenue recorded on invoices, the tax authorities do not adjust the monthly tax amount payable. When the tax authorities cannot accurately verify the declared figures, they must accept the declared figures of the household business. Therefore, many household businesses sell invoices to gain illicit profits, leading to tax revenue losses for the state.

Wednesday, Regarding the method for determining the VAT payable by business households, Circular 92/2015/TT-BTC stipulates that the VAT payable is determined as a percentage of revenue and is regulated according to each business sector. This tax calculation method has created several shortcomings.

2. Suggestions and improvements

One is, The regulations on revenue and expense accounting need to be improved. The accounting system for household businesses needs to define revenue and expenses in accordance with the provisions of the Accounting Law. Clearly define the content and scope of revenue and expense determination to ensure consistent information management with other entities.

At the same time, specific regulations are needed regarding the recognition of revenue and expenses to ensure consistent management of revenue, expenses, and business results during the tax period, thereby accurately determining the tax obligations that business households must pay. Specific regulations should also be introduced concerning trade discounts, price reductions, promotions, etc.

Secondly, To ensure consistency in regulations regarding invoices and supporting documents across all economic sectors, the accounting system for household businesses needs to eliminate regulations on mandatory and guiding documents.

Third, The regulations on accounting records need to be improved. To facilitate accounting record-keeping for business households, and to manage and control their operations, which serves as the basis for tax authorities to determine the tax calculation method and the amount of tax payable, business households can be divided into three groups, and the VAT calculation methods are as follows:

(i) Household businesses with revenue under 100 million VND are not required to open mandatory accounting books and will apply the current lump-sum tax calculation method;

(ii) For business households with revenue from VND 100 million to VND 500 million, it is required to maintain records of revenue, expenses, business results, and inventory of materials and goods; the method of determining the VAT payable is based on information on revenue, expenses, and the VAT rate of taxable goods and services;

(iii) For business households with revenue exceeding 500 million VND, it is required to maintain records of revenue, expenses, business results, inventory of materials and goods, cash, bank deposits, tax accounts, and accounts receivable and payable. The method for determining the VAT payable is based on information about revenue, expenses, and the VAT rate of taxable goods and services.

Four is, To improve the method of calculating VAT using the direct method based on value added, it is necessary to ensure the advantages of VAT are fully utilized. Applying a percentage-based VAT calculation on revenue should be avoided to prevent double taxation, in line with the nature of the direct method based on VAT. Therefore, the State should continue to use the three methods of calculating VAT directly on value added:

Method 1: VAT payable = VAT of taxable goods and services sold (x) VAT rate applicable to those goods and services;

Method 2: VAT payable = Revenue (x) VAT percentage calculated on revenue (x) VAT rate applicable to that goods and services;

Method 3: VAT payable = revenue (x) VAT percentage rate stipulated by the Ministry of Finance (x) VAT rate of that goods or service.

These discussions aim to provide guidance and contribute to the improvement of the current legal framework on accounting and taxation, ensuring its suitability for the business practices of household businesses in Vietnam.

References

1. Decision 169/2000/QD-BTC dated October 25, 2009 of the Ministry of Finance;

2. Decision 131/2002/QD-BTC dated October 18, 2002 of the Ministry of Finance;

3. Circular 92/2015/TT-BTC dated June 15, 2015; Circular 156/2013/TT-BTC dated November 6, 2013; Circular 219/2013/TT-BTC dated December 31, 2013.

Article published in Finance Magazine, issue 2, June 2016