Foreign-based online accommodation booking services will be the next to be targeted by Vietnamese tax authorities in an effort to improve fair competition for local businesses.
At the end of 2016, Vntrip.vn – a Vietnamese online hotel booking site – publicly accused its rival Agoda.com of having avoided performing its tax duties in Vietnam despite having expanded its operations to the Southeast Asian country.
Agoda.com, a Singapore-based company, has run its Vietnamese version since 2010 and currently cooperates with over 9,200 local hotels and vacation rentals.
According to Le Dac Lam, CEO of Vntrip.vn, the Singaporean booking service pockets as much as 20 percent of the room prices paid by customers to its partner hotels, while not being taxed at all on the income.
The executive estimated that the total revenue of Vietnam’s hotel industry would be around US$21 billion in 2020, 50 percent of which will be coming from online hotel booking services, equivalent to $10.5 billion.
At the commission rate of 20 percent, such foreign-based booking sites as Booking.com or Agoda.com would be bagging billions of untaxed dollars that could have gone to Vietnam’s government budget, Lam said.
Responding to Vntrip’s denunciation, the Vietnamese Ministry of Finance last month issued a dispatch demanding that provincial and municipal tax bureaus impose tax policies on online accommodation booking services provided by foreign companies in Vietnam.
Sites such as Agoda, Traveloka, Booking and Expedia are subject to both value-added tax (VAT) of five percent and a corporate income duty of five percent based on their revenue, the dispatch reads.
The Vietnam-based partners of these companies are responsible for the declaration and payment of tax on their behalf, and the State Bank of Vietnam is to work closely with tax authorities in monitoring the revenue of the firms based on their customers’ transactions, according to the ministry.
In an interview with Tuoi Tre (Youth) newspaper, Nguyen Nam Binh, deputy director of the Ho Chi Minh City Tax Bureau, said foreign entities and individuals who do business in or receive income from Vietnam are subject to foreign contractor tax (FCT), which is basically comprised of VAT and corporate income tax, even if they are not legally represented in the country.
“The dispatch by the Ministry of Finance is just a clarification of this law rather than the introduction of a new one,” Binh explained.
He said Ho Chi Minh City would continue to carry out inspections on local hotels to check their tax compliance and collect tax arrears from all payments made by these hotels to foreign online booking sites.