A draft amendment on tax management law has suggested that Vietnamese commercial banks deduct tax from payments local entities made toward Google and Facebook, before transferring the money to those online service providers.
While services from oversea-based Internet companies, such as Facebook, Google and YouTube are being widely used by individuals and organizations in Vietnam, it remains a huge challenge for local tax authorities to collect taxes, as these tech giants do not have their office in the Southeast Asian country.
Whopping revenue
Thuc, a resident in Ho Chi Minh City’s Binh Thanh District, told Tuoi Tre (Youth) newspaper that he has been regularly paying VND450,000 (US$19.8) for Drive, the online storage service of Google, every year.
It is unclear how many users like Thuc are there in Vietnam, but several thousand billion dong was paid by Vietnamese users to foreign companies like Facebook and Google every year.
According to a data from the Ho Chi Minh City tax department, there was more than 423,000 transactions, valued up to VND672.8 billion ($29.6 million), with Facebook and Google conducted by Vietnam’s Sacombank only in 2016.
The transaction amount even reached VND1 trillion ($44 million) when counting all four major Vietnamese commercial banks.
An officer at the municipal tax department believed that the number could be bigger than VND1 trillion if the city’s watchdog launches a more detailed research, not to mention transactions with online travel agencies such as Agoda and Booking.com, which are prospering in Vietnam market.
A woman browses Facebook in this photo taken in Ho Chi Minh City. Photo: Tuoi Tre |
Difficulty in tax collection
According to current regulations, a ‘foreign contractor tax,’ which consists of value-added and corporate income taxes, is applied on payments a Vietnamese entity makes toward a foreign contractor without a licensed presence in Vietnam.
Facebook and Google currently pay a five percent value-added tax and a five percent corporate income tax on any revenue generated from their operations in Vietnam.
These earnings normally come from payments Vietnamese companies make for ads on Google and Facebook. The two tech titans refuse to pay these taxes and force their Vietnamese partners to cover them.
The Vietnamese Ministry of Finance currently stipulates that individuals and organizations in Vietnam deduct the ‘foreign contractor tax’ before making payments to Facebook or Google.
The contracting parties are also responsible for paying the tax on behalf of their foreign contractors; otherwise, the finance ministry will hold them accountable for any back taxes.
However, the rule has proven to be ineffective against giant Internet companies who openly refuse to pay the taxes and instead kick the obligations to the shoulders of their partners in Vietnam.
The contracting entities in Vietnam, in turn, also take a shot at evading the taxes by paying Google and Facebook via international credit institutions, such as Visa, MasterCard, and JCB, without deducting the foreign contractor tax. Those in Vietnam even choose not to declare these payments as operational costs in their tax returns.
A user completes online payment to Google using international credit cards. Photo: Tuoi Tre |
To address those issues, the Ministry of Finance requested the State Bank of Vietnam (SBV), in a previous draft law amendment, to require cross-border services to process all their payment via the National Payment Corporation of Vietnam (NAPAS).
By doing so, the tax authorities will be able to oversee the turnover of these services in order to have a ground for requesting them to pay tax.
The idea faced opposition from the central bank as it refused to involve in tax collection, which it believed the responsibility of the financial ministry.
Burden shifted to service users
The latest bill, this time, suggested that commercial banks, when processing payments from Vietnam to Facebook or Google, deduct their ‘foreign contractor tax’ and transfer the remaining amount to the foreign companies.
Users in Vietnam are concerned that they will be unable to persuade the foreign tech companies to accept such a tax deduction, and eventually have to cover the taxes for them again.
Others worry that Google or Facebook may hike their service prices to deal with the new rule.
Nguyen Thai Son, a local expert, suggested that Vietnamese businesses be allowed to count those taxes paid on behalf of the foreign companies as corporate cost to reduce their own corporate income tax.
The difficult part, to contracting businesses in Vietnam, is to submit documents such as receipts to claim corporate cost.
Lan, a resident in District 7 who sells beauty products online, said that she paid a monthly amount of VND200 million ($8,800) to use advertisement packages from Google, Facebook and Youtube.
But she could not declare these payments as operational costs in her tax returns as they were all conducted via international credit institutions.
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