Tax officials in Ho Chi Minh City have sent tax demands to 13,500 Facebook retailers, urging online businesses to declare earnings and submit their taxes. As per the law, online retailers earning more than VND 100 million (US$4,400) a year are required to declare taxes. Taxes are required to be submitted to the municipal and trade department of the city. This move aims to target only long-term and unregistered business. With the e-commerce industry thriving, the government hopes that the taxation of online transactions will reduce the city’s tax losses.
The government has been contemplating collecting taxes since February 2017 from online businesses on platforms such as Facebook, YouTube, Instagram, and Zalo. They believe, once sellers are registered with the trade ministry, they can be held accountable for products and services and protect customers from fraudulent transactions or subpar products. Tax authorities hope to work closely with the Ministries of Trade and Information, the banks, and postal services to oversee such transactions.
Challenges facing tax authorities
Taxing online retailers will pose a number of challenges for the authorities. First, most of the online transactions in Vietnam involve cash, which will be difficult to track and tax. Currently tax authorities sometimes track conversations between buyers and sellers in Facebook to check transactions. However, this has misled authorities sometimes, as not all conversations lead to transactions.
Second, the use of anonymous, fake, or multiple accounts allows sellers to hide their identity. To identify and monitor the sellers, authorities would require the support of the sellers themselves to voluntarily disclose their businesses and transactions. The government has reached out to sellers online for voluntarily disclosure, but response has been limited.
The relevant authorities need to work with the platform, post offices, delivery companies, and banks if it wants to monitor and tax relevant retailers efficiently. This will require massive coordination between the different entities.
With over 40 million Facebook users in Vietnam, the social networking site has emerged as the primary medium for retailers. Small and home-based business owners have had their revenue grow manifold once they switched to online sales. Through Facebook, more than 50 individuals have earned over US$1 million in a year. Annual e-commerce spending rose by 22 percent to US$160 last year.
The market has been expanding almost 20 percent per year and is currently worth US$4 billion. It is expected to rise to US$10 billion by 2020, driven by broader adoption of smartphones and growing use of Facebook as an online marketplace.
Going forward, tax officials’ needs to take a cautious approach, while enforcing the new regulations. Responses so far from retailers have been mixed due to lack of clarity on how the new regulations will be implemented. The government needs to work with all parties to have a structured approach to efficiently monitor and tax online sellers.
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