Circular 133/2016/TT-BTC stipulating the need to separate accounting and taxation

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For a long time, we have considered the concepts of revenue and accounting expenses, tax expenses, and accounting depreciation expenses as the same. However, in reality, they are executed by different processes, with different purposes and recognition times. Circular 133/2016/TT-BTC, issued to guide accounting policies for small and medium-sized enterprises, provides separate regulations for these concepts.

Depreciation expense is the method of allocating the expense of fixed assets over their useful life equivalent to the normal wear and tear. Depreciation is usually applied to assets with a fixed lifespan that lose value over their use period. In other words, depreciation is the gradual allocation of the value of fixed assets (FA) into the product cost to reproduce the fixed assets after their useful life. Depreciation of assets has a direct impact on financial statements, specifically on the taxable income of the enterprise. However, depreciation is not an actual monetary expense but is allocated in the books, thus not significantly affecting the business's actual cash flow aside from its impact on the tax payable.

In simple terms, accounting expense includes all costs of the enterprise, regardless of whether they are reasonable or not. Unreasonable costs when calculating CIT will be excluded. Tax-deductible expenses are the remaining expenses after excluding unreasonable expenses and noting the non-deductible expenses stipulated in Clause 2, Article 4 of Circular 96/2015/TT-BTC and by the laws on Corporate Income Tax.

Several examples of differences between accounting and tax, such as:

- Enterprises purchasing cars with less than 9 seats valued at 2 billion VND, the accounting depreciation expense is 2 billion but the maximum tax depreciation expense is 1.6 billion;- In advance payment for real estate sales, enterprises must issue invoices and temporarily pay 1% CIT on the received amount, but due to the house not being handed over, the enterprise cannot recognize the revenue.- When purchasing airplane tickets, the ticket office must issue an invoice, but the airline has not recognized the revenue if the passenger has not flown;- Agents selling goods at the right price entitled to commissions, the revenue is the commission but the invoice issued is for the total collected amount of the products;- Selling products from trial production enterprises must issue invoices, but the collected amount is not recorded as revenue but deducted from trial production costs;

Separating these concepts will help SMEs conduct transactions more efficiently, eliminating headaches over accounting expenses, taxes, and simplifying procedures for both enterprises and tax authorities. The new accounting regime will delve more into the essence of transactions rather than the form or name of the transaction as shown on paper.

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