Since February this year, Vietnam has been contemplating collecting taxes from vendors selling goods on social media platforms. Facebook, which has about 35 million users in Vietnam, is the initial target of various local authorities attempting to expand the country’s tax base. 

Sales via platforms such as Instagram, YouTube and Zalo, a Vietnamese chat app, will be next. 

The government believes that once vendors are registered with the Ministry of Industry and Trade (MoIT) they can be held accountable for products and services and customers can be protected from fraudulent transactions or subpar products. In the meantime, enforcement remains a challenge in a country where cash payments are the norm. 

Mixed response 

Just three years ago, Vietnam was ranked as the smallest e-commerce market in Southeast Asia in terms of sales. 

Now its online retail is truly gaining momentum, with one-quarter of its population, or around 23 million people, selling or buying items via social media, according to market researchers Nielsen. 

MoIT expects the ratio to rise to 30 per cent by 2020, and sees people spending an average of $350 a year through such channels.  

Amid the boom in Vietnam’s overall e-commerce market, which is projected to double from $5 billion in 2016 to $10 billion in 2020 and represent 5 per cent of total consumption, taxes collected from business activities on e-commerce websites in general and social networks in particular are non-existent, as “no tax collections have been done from sales via Facebook,” Head of the Ho Chi Minh City Department of Industry and Trade, Mr. Pham Thanh Kien, told a February meeting with the city’s tax authorities.  

Not that digital retailers are untouchable. In fact, “a committee on e-commerce tax collections under the Ministry of Finance (MoF) was formed in 2012,” former Director of the Price and Market Research Institute at the ministry, Dr. Ngo Tri Long, told VET. 

But, “most online businesses using social network sites such as Facebook do not issue invoices, which has prevented authorities from overseeing their business activities,” he added. 

Tax officials are now working on solving the problem of tracking down the thousands of retailers around the country, many of whom are elusive, and calculating their earnings.

In early June, the Ho Chi Minh City Department of Taxation began its own survey of businesses selling goods and services via Facebook. City officials have been told to look into some 13,500 pages on the site to verify the operators’ contact information and tax identification numbers. 

An estimated 80,000 businesses in the city use Facebook in some way. But at least 1 million individuals are thought to buy or sell items on the site without paying taxes on their transactions. 

The Hanoi tax department soon followed, contacting some 13,400 Facebook accounts engaged in advertising or selling goods and services, directing them to its own website for more information on relevant regulations. 

Under the 2006 Tax Administration Law, Vietnam requires online retailers obtain permits and levies a 0.5 per cent income tax rate and a 1 per cent value-added tax rate on sales of more than VND100 million ($4,400) per annum. 

Mixed responses have come in the wake of such moves, with many online retailers saying the tax man has no authority over Facebook. 

Many claim they already have business licenses and a tax code, and only use Facebook to advertise their products, while others say they earn less than VND100 million ($4,400) annually so are not required to declare tax. 

 In one case, Ms. Nguyen Phuong Nhung, an online retailer in Ho Chi Minh City’s Binh Tan district who sells clothes and cosmetics on Facebook, said her monthly revenue usually hovers around VND30-VND40 million ($1,300-$1,700). 

She did not hide the fact that she doesn’t publicly disclose her address or phone number on Facebook. “I think this is why the city’s tax department doesn’t have me in their database,” she said. “So far I haven’t been contacted.”  

Existing loopholes 

Acknowledging the situation, Chairwoman of the Vietnam Tax Consultants Association, Ms. Nguyen Thi Cuc, told VET that the difficulty in controlling online retailers comes down to Vietnam’s inadequate tax policies for online businesses. 

Under Government Decree No.52 in 2013 and MoF’s Circular No.47 in 2014, social networks that allow members to open online booths or sub-websites to display their goods or services, or open sections allowing their members to publish commercial information, must register as e-trading floors with MoIT. Traders or organizations establishing these social networks must fulfill the responsibilities of e-trading floor service providers.  

But the current law fails to govern foreign social networks involved in e-business activities, which are established under international domain names with servers located overseas, owned and operated by foreign traders without permanent offices in Vietnam. 

Although addressing the need of foreign social networks to provide trans-border information on Vietnamese users, neither Government Decree No.72 in 2013 or the Ministry of Information and Communications’ Circular No.38 in 2016 require social that network owners cooperate with and assist State authorities in providing information on these vendors.  

Sanctions for tax evasion and fraud are relatively strict, under which individual traders with taxable incomes will face administrative punishment if they fail to make tax declarations or falsify information. 

Failure to submit tax registration applications and tax declarations are subject to fines of triple the amount evaded under Decree No.129 in 2013, while evasion of taxes exceeding VND50 million ($2,200) may result in criminal charges.  

While Vietnam’s tax authorities have “sometimes” tracked conversations between vendors and purchasers on Facebook, according to international law firm Dezan Shira & Associates, not all conversations have led them to transactions. 

Also, the use of anonymous, fake, or multiple accounts has allowed vendors to hide their identity, so authorities require voluntary support from the vendors themselves regarding their businesses and transactions. Despite much effort to identify and monitor them, however, the number of responses has been limited.  

Until a system to tax these online sales can be established, vendors are simply urged to report their transactions. 

But such a system could be a long time coming. The sale of goods, in particular via social media platforms, is extremely difficult to get a handle on, as the items in question usually change hands offline and payment is often made in cash. 

Even goods shipped to the recipient can be sent either through the postal system or by private courier. 

Igniting the flame 

So far, only 1,000 responses from vendors have come in the month since notifications were sent out, a representative from the Ho Chi Minh City tax department said. 

Tax authorities have decided to work on tougher solutions to crack down on potential tax-evading online retailers, and have asked MoF to finalize regulations regarding tax declarations and deductions at the source and on the supervision of online business activities. 

To combat vendors that open multiple Facebook accounts to avoid detection, the tax department claimed it has come up with multiple solutions, such as closing down accounts or sending officials posing as customers to confront them in person. 

It is also considering a name-and-shame approach to individuals and organizations that refuse to pay tax, and will ask the State Bank of Vietnam for copies of retailers’ bank statements to determine their income, while asking courier companies to provide information on the quantity and value of the goods they transport for these vendors. 

But lawyer Dr. Bui Quang Tin, a lecturer at the Banking University of Ho Chi Minh City, told local media that the process should be tackled in a cautious manner. Initially, there should be requirements that all individuals conducting business via Facebook must register their operations and declare their income, and he noted that with millions of Facebook accounts, tax authorities should first target large and professional operators, because many individual vendors operate their online business as a side job or even a seasonal job. 

Simple and open mechanisms should therefore be adopted to encourage online traders to declare and pay taxes.  

Agreeing, Ms. Cuc believes that if tax authorities can stimulate a sense of compliance among e-commerce vendors and purchasers, then collecting 50 to 60 per cent of the tax payable would be a good result. “The most important thing is to turn the tax payment process into a habit, or else it will have a negative impact on the country’s business environment,” she said.

Nevertheless, Dr. Long believes the objective must be for these so-called “free model” businesses operating in digital marketplaces to pay taxes for two main reasons: to create a level playing field between online and traditional retailers, and avoid tax losses for the State. 

“Reasonable sanctions would be key in monitoring these retailers, because the nature of every business is to avoid and evade taxes as long as their actions are not uncovered,” he explained. 

“On top of that, comprehensive collaboration between tax departments, the media, ministries, and other authorities would avoid a controversy erupting, as happened between ride-hailing services Uber and Grab and local taxi companies.”

VN Economic Times