The Vietnam Digital Communications Association (VDCA) has submitted a petition to the National Assembly’s Finance and Budget Committee and the Ministry of Finance, advocating for a 0% VAT rate on digital content and entertainment services.

According to the VDCA, the draft law on Value Added Tax (VAT) for digital content services is an essential step in refining the legal framework to support the development of the digital economy and international integration. However, after review, the association noted several points that need reconsideration and adjustment due to potentially negative impacts on digital content production and film-making businesses, particularly their international competitiveness.

Specifically, the draft amendment to Article 9, Clause 1, Point a, proposes a 10% VAT rate for digital platform services, irrespective of whether the service is exported or consumed domestically. This change would remove the current 0% VAT rate for exported digital content services.

The tax authorities cite difficulties in distinguishing between revenue from exported services and domestic consumption, which complicates tax management. However, VDCA argues that a 10% VAT rate on exported services could adversely affect businesses by reducing their competitiveness and attractiveness to investors, particularly compared to other countries that maintain a 0% VAT rate for such exports and offer input tax refunds to reduce costs.

Chairman Nguyen Minh Hong of VDCA pointed out that a 10% VAT on exported cross-border services could hinder Vietnamese providers’ competitiveness, as other countries typically impose a 0% rate on exported services and allow input tax refunds.

VAT is a consumption tax that should ultimately be borne by the end consumer. However, in the case of digital products, consumers are often viewers (who do not pay), meaning companies cannot collect VAT from them. This effectively reduces business revenues and imposes a financial burden since companies must still pay VAT to the state, even though they cannot recover it from foreign consumers accessing their content online.

VDCA illustrated this with an example: if a company earns $100 from a digital platform, under the proposed rule, it would immediately owe $9.09 in VAT. However, this revenue is shared by the digital platform, and Vietnamese companies do not directly receive payment from consumers.

The Chairman also highlighted that VAT regulations in Vietnam currently do not align with the "destination principle," where VAT is collected in the country where consumption occurs. This principle, followed internationally, justifies the 0% VAT rate on exports to allow the consuming country to collect the tax. A 10% VAT rate on exports could lead to double taxation, with companies paying VAT both in Vietnam and the consuming country.

Digital services are already subject to double taxation. For non-resident content creators, income from U.S. views is taxed at a rate of 24-30% before payment is received. When these earnings reach Vietnam, the creators face additional taxes of 7-30%, including VAT and corporate or personal income tax.

Chairman Hong noted that a 10% VAT could deter growth in the cultural sector. The government has promoted the development of Vietnam’s cultural industry, but investments in cultural products often carry high risks, with few yielding profits. High tax rates on cultural products could act as a significant barrier, reducing the incentive for companies to invest in and create new cultural products.

VDCA proposed that the Ministry of Finance should consider specifying that the 0% VAT rate does not apply to digital content services (such as entertainment, online games, digital films, photos, music, and advertising) if the business cannot provide documents proving consumption outside Vietnam or in non-tariff zones as defined by government regulations.

Additionally, VDCA recommended maintaining a 5% VAT rate for cultural activities, exhibitions, sports, art performances, and film production to support sustainable development and public access to these services.

Thai Khang