How to calculate severance tax based on the final product output in Vietnam?

What is the resource output used for severance tax calculation in Vietnam?

Based on Article 5 of the 2009 Law on severance tax, the resource output used for severance tax calculation is determined as follows:

- For extracted resources where the quantity, weight, or volume is identifiable, the resource output used for severance tax calculation is the actual quantity, weight, or volume of the resources extracted during the tax period.

- For extracted resources where the actual quantity, weight, or volume cannot be identified due to containing various substances and impurities, the resource output used for severance tax calculation is determined based on the sorted and classified individual substances obtained after screening.

- For extracted resources not sold but used to produce other products, if the actual quantity, weight, or volume cannot be directly identified, the resource output used for severance tax calculation is determined based on the output of the products produced during the tax period and the resource usage norms per unit product.

- For natural water used for hydroelectric production, the resource output used for severance tax calculation is the amount of electricity the hydroelectric plant sells to the buyer as per the electricity sales contract or the electricity delivered in the absence of a sales contract, as determined by a metering system meeting the Vietnamese quality measurement standards and confirmed by both the buyer and the seller.

- For natural mineral water, natural hot water, and natural water used for industrial purposes, the resource output used for severance tax calculation is measured in cubic meters (m³) or liters (l) according to a measurement system that meets Vietnamese quality standards.

- For resources extracted manually, dispersedly, or on a non-regular, mobile basis, where the estimated annual extraction value is less than 200,000,000 VND, the resource output is estimated seasonally or periodically for tax purposes. Tax authorities cooperate with related local agencies to determine the estimated resources for tax calculation.

Therefore, it is evident that depending on the type of resource, the extraction method, and the way the quantity is determined for severance tax purposes will vary.

How to calculate severance tax based on output in Vietnam?

Based on Article 4 of the 2009 Law on severance tax, the bases for calculating severance tax can be done in three ways:

[1] Based on resource output used for severance tax calculation

[2] Based on taxable value

[3] Based on tax rate

Additionally, the calculation bases are further clarified in Article 4 of Circular 152/2015/TT-BTC as follows:

- The bases for calculating severance tax are resource output used for severance tax calculation, taxable resource value, and severance tax rate.

- Determining severance tax payable in the period:

- In cases where the state agency determines the fixed tax amount per unit of extracted resources, the payable severance tax is calculated as follows:

- The severance tax determination is based on the Tax Authority's database, in accordance with the applicable tax determination regulations under the tax administration law.

How to calculate severance tax based on the final product output in Vietnam? (Image from the Internet)

How to calculate severance tax based on the final product output in Vietnam?

Based on Clause 3, Article 5 of Circular 152/2015/TT-BTC, the method for calculating severance tax based on the final product output is guided as follows:

- The severance tax based on the final product output means: extracted resources that are not sold but must be processed and produced for sale (domestic consumption or export); the resource output used for severance tax calculation is determined by converting the produced product output in the period to the resource output based on the resource usage norms per unit product.

+ For extracted resources not sold and must be processed and produced for sale (domestic consumption or export), the resource output used for severance tax calculation is determined by converting the product output produced in the period sold based on the resource usage norms per unit product.

+ The resource usage norms per unit product is declared by the taxpayer based on projects approved by the competent authority, technology standards designed for the product production currently applied, in which:

++ If the product sold is a resource product, the resource usage norms per unit of resource product sold are applied.

++ If the product sold is an industrial product, the resource usage norms per unit of industrial product sold are applied.

- The determination of whether the sold product is an industrial product after processing shall be made by the relevant state ministry with authority.

Illustrative Example 1: Company A extracts stone and uses part of it to grind and produce cement for sale. The resource output used for severance tax calculation is determined as follows: if the quantity of extracted stone used for cement production cannot be determined, convert the cement output into the extracted stone output; In this case, Company A determines the output based on its technical standards and process.

Illustrative Example 2: Company C extracts 10 tons of apatite ore resulting in 3 types of apatite: apatite 1, apatite 2, and apatite 3. After sorting, the specific quantities are 2 tons of apatite 1, 3 tons of apatite 2, and 5 tons of apatite 3. Among these, apatite 1 and apatite 2 are sold immediately, while apatite 3 is further processed into apatite 1 for sale. Thus, the taxable output is determined as follows:

- The extracted output of apatite 1 and apatite 2 in the period is 5 tons;

- Since apatite 3 is processed into apatite 1 for sale, the resource output used for severance tax calculation is the apatite 1 produced.

Illustrative Example 3: Company D extracts multi-metal ore, with part being consumed domestically in its raw multi-metal ore form and the remainder processed into refined concentrate for export. The taxable output is determined as follows:

- For domestic sales: refer to the proportion of each substance within the multi-metal ore as approved by the National Reserve Assessment Council and inspect samples to determine the taxable output for each substance in the resource product (ore) for sale.

- For exports: If the refined resource product is identified by authorities as an industrial product, calculate the resource output used for severance tax calculation by converting it back to the resource output before processing into the industrial product, based on the proportion of each substance in the multi-metal ore as approved by the National Reserve Assessment Council and inspect samples and the resource usage norms per product unit declared by Company D as per its technological process.

Thus, the calculation of severance tax based on the final product output shall follow the guidelines outlined above.