What is pre-calculated tax income?

Pre-calculated taxable income is a concept that many accountants still do not fully understand what it is and its nature. This article will provide you with some basic knowledge that you may not know to help you more convenient in work and life.

Learn the basics of taxable income

What is advance taxable income

?Many people in business talk about precalculated taxable income, but what is its concept? There are many opinions about the concept of what is taxable income that has been put forward to explain this term. It can be summarized as follows: Pre-calculated taxable income is the difference between the value of goods sold and the value of goods created by the contractor.

In fact, the nature of pre-calculated taxable income is that the contractor’s profit is calculated before completing the project for the investor.

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The above concept is understood as follows: The value of creating goods is the cost paid to create those goods. When products or construction works are manufactured by the contractor or purchased from another unit and put into direct sale or used as building materials for the investor, the contractor the contractor will have to pay a certain cost to obtain these products or materials. In addition, there are related costs that need to be spent to bring products into the project (for example, import costs, transportation costs, costs to pay workers ….). Plus VAT.

Value of goods sold: is the expected selling value of the contractor after adding the value of creating goods.

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Formula for calculating prepaid income tax

Pre-calculated taxable income is usually calculated as follows:

Pre-calculated taxable income = 5.5% of the total value of direct costs built up in the final settlement, also known as “normative profit”.

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According to the government’s current regulations, when making a construction cost estimate for a construction work, the pre-calculated taxable income is calculated by multiplying the rate norm (specified by type of construction work) by (Direct cost + overhead). In case there are materials provided by the investor, the value of supplied materials is still included in the cost of materials in the direct cost. This construction and installation estimate of each contractor will be aggregated and approved by the investor to serve as the basis for ceiling pricing for the bidding package for bidding / appointment.

Why do contractors have to calculate taxable income in advance

According to the principle of product pricing in construction, when a contractor participating in a bidding competition scrambles to build a work or to win the right to supply his own product, the contractor must determine the price to be sold in advance. This price is the expected selling price of the contractor and also the contract value of the contractor with the investor. This price is called the bid entry price and is calculated as the sum of direct and overhead costs plus the contractor’s pre-calculated profit plus VAT. When participating in the bidding, the contractor will not calculate the pre-calculated taxable income at the rate of the norm set by the state, which is usually lower than the norm and can be zero depending on the shape and competitiveness in the bidding. .

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Why do contractors have to calculate taxable income first?

In short, the contractor must calculate the pre-calculated taxable income to form the selling price of the product. At the same time, the pre-calculated taxable income also shows the competitiveness of the contractor’s business.

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Thus, each enterprise must calculate the pre-calculated taxable income in business to be able to generate and maintain the profit desired by the enterprise while still ensuring the competitiveness between businesses. Hopefully this article will partly help you understand the term pre-calculated taxable income and gain more information when doing jobs related to bidding and accounting! Good luck.