Collecting tax from e-commerce is a difficult problem all over the globe, because the current taxation system was built for the traditional economy, while the digital economy is based on online transactions.
The global e-commerce market had value of $26 trillion in 2020, according to UNCTAD (the United Nations Conference on Trade and Development). The strong rise of e-commerce in the context of the pandemic has increased the proportion of online retail from 16 percent of total retail turnover to 19 percent in 2020.
In 2019, OECD said taxation agencies should rely on e-commerce platforms to prevent tax evasion. The organization released a set of harmonized tax rules on VAT/GST (value added tax, known in some countries as a goods and services tax) in a digital economy.
The set of rules, already in place in a number of countries, help eliminate double taxation or no taxation.
Countries are looking for ways to more efficiently collect taxes from technology corporations or online-based activities.
In the UK, e-commerce platforms such as eBay and Amazon must be sure that their overseas clients register VAT in the UK. The platforms will face heavy penalties or criminal proceedings if they don’t observe the regulation.
In Germany, e-commerce platforms must take legal responsibility about unpaid VAT of sellers in Germany.
India once stirred debate when requesting e-commerce platforms to collect GST from suppliers. E-commerce firms in the countries argued that the regulation increased their legal compliance costs as they have to implement the function of taxation bodies.
In Europe, since July 1, 2021, all online sellers and marketplaces have had to file business registration in a member country if they want to sell goods online to the EU. The companies that sell goods online have to collect VAT when transactions are carried out via EU-based warehouses.
Vietnam is one of the most promising digital economies in Southeast Asia. The Vietnamese e-commerce market has an impressive growth rate. Vietnam’s e-commerce revenue reached $13.2 billion in 2020, while the figure is expected to reach $52 billion by 2025, with the average growth rate of 29 percent.
The activities of selling/buying goods on marketplaces have become an indispensable part of people’s life in many regions. However, it is challenging to manage the tax payment for this business mode.
Vietnam is taking efforts to perfect the legal framework to regulate the growing cross-border e-commerce activities.
The Tax Management Law No 38 and some circulars promulgated since 2020 have created a set of principles on tax management. After the regulation on managing the cash flow of cross-border platforms, Ministry of Finance (MOF) has just released Circular 40 stipulating that marketplaces must declare and pay tax on behalf of individual sellers.
Marketplaces, considering revenue and other collection items that business individuals can earn via marketplaces, including the money to receive via delivery firms (cash on delivery - COD), intermediary payment and some other payment modes, to define taxable revenue for sellers and pay tax for the sellers.
The taxes to be withheld directly from revenue are VAT and Personal Income Tax (PIT).
The regulation has raised controversy. Marketplaces complain that it would cause compliance cost to increase as they would have to spend money on infrastructure and workforce to classify and calculate the taxes to pay. They also argue that they cannot control transactions and obtain information about revenue, because they are only a bridge connecting sellers and buyers.
The Vietnamese e-commerce market has specific characteristics, including a high volume of cash-based transactions and diverse sources of revenue. In some cases, one seller sells goods on many platforms. These are the issues policymakers need to consider when assigning responsibilities to marketplaces.
Meanwhile, the tax management agency said the regulation won’t affect individuals in complying with tax duties, because they won’t have to pay tax at fixed business facilities once they have paid tax for that revenue.
The agency has also decided to extend the implementation roadmap to give e-commerce firms more time to prepare for the data connection with taxation agency.
From January 2022, marketplaces will have to connect and provide information about sellers to the taxation agency.
The coronavirus pandemic has hit almost every country in the world, including Vietnam, causing disruption in the global supply chain.
Vietnam intends to issue a new decree to regulate cross-border e-commerce deliveries amidst the e-commerce boom.