Need for a legal corridor to manage e-commerce tax

The General Department of Taxation is developing and implementing new guidelines in management for overseas suppliers without a permanent establishment in Vietnam.

Tax revenue increases year by year

According to the General Department of Taxation, for the business model of online advertising services of foreign organisations that do not establish legal entities in Vietnam like Google, YouTube, Facebook, etc., the tax authority will perform tax management for the income arising from this activity through partners or advertising agencies or businesses that purchase services from these companies in Vietnam.

According to management data on the tax system as of June, the total tax amount (from 2018 to the end of 2020) paid by Vietnamese firms signing advertising contracts with foreign organisations has declared and paid tax on behalf is VND 3,082 billion, of which VND 770.6 billion was paid in 2018, VND 1,167.9 billion was paid in 2019 and VND 1,143.7 billion was paid in 2020.

The figures showed these types of businesses are growing rapidly through the increase in payable tax amount. Therefore, the tax sector has strengthened supervision and management to prevent tax losses. Following the direction of the General Department of Taxation, the tax departments of provinces and cities have implemented tax administration for e-commerce through communication and support taxpayers to perform self-declaration, pay tax complying with regulations; work with departments, commercial banks and agencies to exploit information, thereby urging taxpayers to declare and pay tax in accordance with the regulations; inspect and examine organisations and individuals operating and involved in e-commerce business. At the same time, review information channels on social networking sites of famous people with many followers to capture and put on the list of tax management.

According to the General Department of Taxation, total revenue and fines collected from individuals residing in Vietnam providing cross-border services and individuals doing e-commerce business on websites and Facebook at some major tax departments such as Hanoi, HCM City and Da Nang by December 2020 was VND 240.89 billion. In particular, the revenue at Hanoi Tax Department was VND 148 billion, HCM City Tax Department was VND 68.55 billion, and Da Nang Tax Department was VND 24.33 billion.

In the first four months of 2021, tax departments in the country processed to increase payable tax collection of more than VND 130 billion (including additional declared tax amount, tax arrears, late payment interest and fines) for organisations and individuals engaged in e-commerce.

Develop and finalise appropriate policies

According to the General Department of Taxation, the development of e-commerce will change revenue collected from transactions between businesses and consumers, and among individuals. In Vietnam, this is no exception. Many businesses are using e-commerce transaction methods to reduce intermediaries, costs and speed up goods circulation. At the same time, more and more individuals use social networks and e-commerce sites to provide goods and services to consumers.

This is not only advantage of e-commerce, but also creates new challenges for tax authorities in administration for this type of business, such as tax authorities need to capture information fully and promptly on e-commerce transactions to determine arising payable tax amount paid by taxpayers engaging in e-commerce business. This information is not available and depends on the law compliance of each organisation and individual. At the same time, the coordination between State management agencies and e-commerce businesses has not been synchronised, leading to insufficient sources of information for tax administration.

From the above challenges, to promote e-transactions in tax administration in general and e-commerce in particular for both facilitating taxpayers and covering and controlling generated revenue, especially for cross-border transactions, the General Department of Taxation believed it is necessary to have specific regulations as well as prepare tax management measures for new business forms.

According to the General Department of Taxation, through working sessions with ministries, departments and sectors and on the basis of newly issued circulars of the Ministry of Finance, the General Department of Taxation is developing a roadmap to implement new guidelines of regulations for overseas suppliers without permanent establishment in Vietnam, e-commerce platforms and organisations in Vietnam that are partners of overseas digital platform providers to ensure fast and convenient implementation and deployment for taxpayers.

The General Department of Taxation is also continuing to work with ministries and sectors such as the Ministry of Industry and Trade, the Ministry of Information and Communications, and the Ministry of Public Security, as well as studying international experiences to develop tax policies for e-commerce business; simplify administrative procedures, tax declaration and payment methods for e-commerce taxpayers, and unify the focal point in tax declaration and payment.

The General Department of Taxation will study and submit to the Ministry of Finance and other authorities for implementation and application of several new policies in accordance with international practices in requesting overseas suppliers to deduct the tax amount paid on behalf of organisations and individuals before paying income at an appropriate rate.

Another important task from now to the end of the year of the tax sector is to strengthen the inspection and examination of IT application in managing organisations and individuals with large revenue and high risk of tax generating from e-commerce.