E-commerce: How to collect enough taxes?

Despite its relatively large scale, the tax administration of e-commerce businesses still faces many difficulties. Illustration: VNA

Not yet fully declared and paid tax

Assessing the current situation of e-commerce in Vietnam, Mr Nguyen Thanh Hung, a representative of the Vietnam E-commerce Association (VECOM), said that the growth rate of e-commerce in Vietnam had increased rapidly in recent years. Specifically, the size of Vietnam's e-commerce market in 2015 was about US $ four billion, but by 2022, Vietnam's internet-based economy is forecasted to grow by 28%. This is also the highest growth rate in Southeast Asia. By 2025, the market is forecast to reach US $ forty-nine billion. Even Google forecasts that the size of Vietnam's e-commerce market in 2025 will reach US $ fifty-seven billion. Therefore, it can be affirmed that this market's trend and potential for expansion are enormous.

Mr Nguyen Thanh Hung added that Vietnam's e-commerce market faces many significant obstacles, such as online payment, order fulfilment, foreign investment, human resource development, and access gaps to e-commerce between localities, policy and legal environment. Furthermore, it is notable that although e-commerce in Vietnam is experiencing significant development, 86% of electronic transactions are paid in cash. The reason is that besides the habit of using cash, customers' trust in products sold online is a concern.

In addition, according to statistics, by the middle of 2022, in Vietnam, there were 139 e-commerce trading floor owners (including 41 e-commerce trading floors and 98 e-commerce trading floors providing services) and three companies for trading. The cooperation of foreign suppliers on behalf of foreign suppliers pays organizations and individuals with transactional relations with foreign suppliers. Despite its large scale, the tax administration of e-commerce businesses is facing many difficulties.

According to Ms Nguyen Thi Cuc, Chairwoman of the Tax Advisory Association, organizations and individuals have annual revenue from e-commerce businesses, providing services for Google, Facebook, and Youtube up to trillions of dong. These revenues are transferred to Vietnam to the beneficiaries through commercial banks in Vietnam but have not yet fully declared and paid taxes.

In recent years, the Ministry of Finance and the General Department of Taxation have drastically directed the tax departments of provinces and cities to strengthen tax administration, inspection and examination according to risk management methods, including the following activities: e-commerce business. As a result, the amount of tax arrears and fines for organizations and individuals doing e-commerce is up to hundreds of billions of dollars. Specifically, in 2021 alone, the Hanoi Tax Department collected VND 110 billion in tax from e-commerce activities. Four hundred sixty-five individuals with income from foreign organizations (Google, Facebook, Apple) declared and paid 56.1 billion dongs of tax. In addition, an individual declared and paid eleven billion dongs into the state budget. The amount of tax this individual has to pay has been accumulated over many years, with the late payment amount being over VND four billion. By the end of June 2022, the tax office collected from handling violations and preventing revenue loss from e-commerce businesses providing digital services is about 923 billion VND. Revenue increased over the years, rapidly increasing from 2021 to VND 261 billion. The first six months of 2022 increased sharply to VND 358 billion, equaling 136% of the revenue in 2021.

Favourable mechanisms are needed

Requiring the owner of an e-commerce trading floor to declare and pay taxes on behalf of an individual based on authorization according to civil law provisions is facing many difficulties. According to Ms Nguyen Thi Cuc, business profits increased, but tax collection activities face many difficulties because Vietnam's current tax policy does not distinguish between traditional business activities or business activities with an e-commerce element. According to the Government's Decree amending and supplementing Decree 126/2020/ND-CP guiding the Law on Tax Administration No. 38, for individuals doing business and selling goods via social networks, the tax authorities will base themselves on the geographical area to manage the collection of taxes on goods. As a result, there will be two cases for individuals in Vietnam that provide digital information content products: declared by the company or by the individual.

"The most important thing is understanding the cash flow and building a database to manage tax collection," said Ms Cuc. At the same time, in the coming time, Vietnam needs to continue to modernize tax administration, upgrade information technology infrastructure to connect and store information to support and connect with taxpayers, developing electronic tax applications on the mobile platform for individuals. In addition, it is necessary to build a database to manage risks for e-commerce, apply artificial intelligence (AL) to process data, give warnings if the risk threshold is exceeded, and propose risk management measures for e-commerce. At the same time, building a smart tax management system, meeting the ability to connect data with state management agencies, integrate information, handle big data, operate 24/7, support and Facilitate taxpayers.

"in the coming time, for tax administration in general and e-commerce tax management in particular to achieve more success, it is necessary to have the synchronous and active participation of agencies such as Tax, State Bank, Ministry of Industry and Trade, Ministry of Public Security, Ministry of Information and Communications to create an equal business environment and create healthy competition in the e-commerce business environment", said Ms Nguyen Thi Cuc.

For Vietnam's e-commerce to develop sustainably and effectively, Dr Tran Thi Hong Minh, Director of the Central Institute for Economic Management (CIEM), said that the Government needs to have favourable mechanisms for businesses to participate in this field. Along with that is to complete a complete legal infrastructure soon, creating favourable conditions for e-commerce. In particular, limit  the use of cash in electronic transactions to stimulate e-commerce development. Furthermore, it is necessary to reduce the cash index on the total number of payment means because this index in Vietnam still accounts for 11%.