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.
Tax obligations consist of licensing tax, value added tax, personal income tax, excise tax, and environmental protection tax (if any). The amount of license tax on online businesses is VND1 million ($44) per year for annual revenue above VND500 million ($22,000), VND500,000 ($22) per year for annual revenue between VND300-500 million ($13,200-22,000), and VND300,000 ($13) for revenue between VND100-300 million ($4,400-13,200). Tax departments in districts will play a direct role in penalizing Facebook vendors who do not register their business or pay taxes. They will also publish a list of individuals and organizations that commit acts of tax evasion.
Online merchants who have already registered for taxes and received tax codes during the first half of the year will pay a license tax for the whole year, while those who are granted in the second half of the year will have to pay 50 per cent of the annual charge. Internet sellers who distribute and supply goods have to pay value added tax and personal income tax of one per cent and 0.5 per cent, respectively. The VAT and personal income tax for service providers are five and two percent, respectively. In addition, online sellers providing transportation services or other services related to distribution will be required to pay three per cent of value added tax and 1.5 per cent of personal income tax. Other e-commercial business activities have to pay two per cent value added tax and one per cent personal income tax.
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 disclose their businesses and transactions. The government has reached out to sellers online for voluntary disclosure, but the response has been limited. To confront multiple account holders, the government is planning to shut down their accounts or send officials posing as customers to confront them.
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. The tax officials have already reached out to 13,422 Facebook account holders engaged in online sales, but only 2,000 have registered themselves with the government.
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. According to a survey in the recent Vietnam E-commerce Report 2017, 34 per cent of enterprises ran their online business on social networks, such as Facebook or Zalo in 2016. In terms of receiving an order, the report highlights that 85 per cent of enterprises received online orders through email, 45 percent received orders through their own websites, and less than 50 per cent of the surveyed enterprises received orders through social networks.
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.
Editor’s Note: This article was originally published in June 2017 and incorporates information on recent government announcements.
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