Vietnam: Tax authorities at a loss over collecting dues from online business

• Jun 30, 2021

Despite progressively stricter regulations by tax collectors, individuals running business via online platforms are always a step ahead finding workarounds.

As soon as Decree No.126/2020/ND-CP officially came into force at the beginning of last December, online vendors have quickly found tricks to avoid their tax obligations.

Circumventing banks’ obligation to provide bank information of online businesses to tax authorities, many sellers have asked customers to place order via chat on Messenger or other applications and transfer money separately, not through the e-commerce application. They have been asking customers to avoid phrases that would allow banks to identify the payment as anything but a money transfer.

In a talk with VIR, X.N. who operates a clothes store on Facebook said that she has been asking customer to transfer money separately and send a screenshot on Messenger of the successful transfer.

“We have been doing this for nearly half a year to reduce our tax payments since the regulation took effect,” said Nga.

Nga is just one of many online vendors using this trick. Even, a shop selling branded clothing at the price range of VND15-16 million ($652.1-695.6) for clothes and VND25 million ($1087) for a pair of shoes, has openly requested customers to use the workaround on its Facebook fanpage.

For expensive goods, many vendors allow transferring half the price via bank and pay the rest by cash on delivery.

Dang Ngoc Minh, deputy head of the General Department of Taxation (GDT) under the Ministry of Finance (MoF) admitted that collecting tax from online vendors has become increasingly difficult because of the growing number of taxpayers using more sophisticated tricks.

Data published by the GDT showed that Vietnam in 2020 had about 18,000 individuals and organisations earning about VND1.462 trillion ($63.5 million) in total from online platforms. However, these are based on preliminary collection while the actual number could be much larger.

Tax collection has also been difficult as banks have been reluctant to share customers’ information due to privacy-related issues. Both Saigon Commercial JSC and Agribank noted that the regulation has made customers worry about their privacy and highlighted the need for more detailed regulations on when information can be shared and the specific kind of information that should be supplied to local tax authorities.

Controversy surrounding Circular 40

To solve the breakdown, the Ministry of Finance (MoF) most recently released Circular No.40/2021/TT-BTC requiring e-commerce operators to pay tax on behalf of their individual and household vendors from August 1. However, the regulation has drawn controversy.

In a talk with VIR, a representative of a big e-commerce site in Vietnam who wishes to be unnamed, said that Circular 40 clashes with other regulations. For example, according to Article 45 of the Law on Tax Administration, business individuals must declare and pay tax at tax authorities in the areas where they are located while e-commerce operators may be located in other areas.

“Thus, it will be difficult for us and our vendors to show how much the platforms deduct and pay in tax on behalf of vendors and how much they pay in other locations,” said the representative.

Agreeing with the Vietnam E-commerce Association (VECOM) at a meeting with the MoF in the middle of June, Sendo stated that the deadline by August 1 is too short to collect sufficient data of all vendors operating on their e-commerce site. Sendo requested the MoF to issue more detailed guidelines to implement the regulation.

In a talk with VIR, Nguyen Minh Long, director of Dragon Law, said that the current regulations on tax management for online vendors are not yet efficient as “they mostly target noncash payments while most transactions are made by cash on delivery.”

Long added that the new obligations for e-commerce platforms in Circular 40 are not appropriate. “According to Article 24.1 of the Law on Personal Income Tax, e-commerce platforms are not responsible for personal income tax (PIT) declaration and deduction. Neither does Decree No.52/2013/ND-CP put such an obligation on e-commerce platform operators.”

“In addition to figuring out the actual number of individuals and organisations conducting business online, another big problem is that most of them are using every trick to prove their annual revenue is less than VND100 million ($4,347) to avoid PIT duty. To date, tax authorities have not found efficient measures for the issue,” said Dinh Thi Hoang Nhung, managing director of HNLaw.

“Moreover, requiring all citizens [including those who are not subject to PIT] to register a tax code is necessary. This will help local tax authorities to hold full data of taxpayers,” Long added. “The tax code could be integrated with the personal identification number.”

Assessing the regulation’s impact, Nguyen Tan Tai, tax and corporate service manager at Grant Thornton Vietnam said that due to the mechanism, sellers may reconsider their pricing method. Sellers, e-commerce businesses, and supply chain service providers will reconsider payment and collection terms. E-commerce operators will upgrade their database to gather information of sellers as required. “Once business partners accept the new terms and update their system to adapt to the new tax laws, we believe that e-commerce businesses will be in a more healthy, competitive, and developed environment,” he stated. Currently, Circular 40 only applies to households and individuals residing in Vietnam, leaving sellers based overseas untouched. Still, the experts are of the view that similar provisions will be soon discussed to apply to foreign individuals doing business in Vietnam. According to the view of Grant Thornton Vietnam, the local government action is timely and appropriate, aiming to create a fair and healthy e-commerce playground where all individuals, households, and registered corporates pay their taxes. Vietnam does have PIT regulations for individuals doing business but the provisions were not designed for e-commerce. Last year, the government introduced the new Law on Tax Administration, effective from July 1, 2020, followed by Decree No.126/2020/ND-CP. This new law has brought noticeable changes to the tax mechanism regarding e-commerce. This law is ultimately designed to resolve tax collection issues from business activities over digital platforms.

Source: VIR