While it is not uncommon for Vietnamese individuals to make healthy incomes from online ad revenue paid by Internet platforms for their products or services, the country’s tax authorities are still scratching their heads over a workable solution to ensure these ‘online billionaires’ pay their taxes appropriately.
The taxing headache in Vietnam has been highlighted by a recent case in which a young Vietnamese app developer was required to pay more than VND4.1 billion (US$176,000) in personal income tax arrears for ad revenue he collected in two years from Google.
Industry insiders believe that there are numerous similar cases that go undetected, which means Vietnam’s tax authorities are losing a massive amount of unpaid taxes on an annual basis.
What’s worse is that it is not easy either for Vietnam to require such oversea-based Internet giants as Google and Facebook to pay taxes for incomes they generate from the Vietnamese market.
Making fortune, avoiding taxes
An expert in digital sales says content creators can earn $0.02-0.03 per click on the Google ads placed in their content.
The monthly payment that companies like Google and its video platform YouTube make to organizations and individuals in Vietnam is estimated up to millions of U.S. dollars. However, not all these fortune makers responsibly fulfill their tax duties.
T.D.P., the 20-year-old app developer in Ho Chi Minh City that was in August asked to pay the municipal taxman more than VND4.1 billion in back taxes, reportedly received over VND41 billion ($1.76 million) from Google, Facebook and YouTube between 2016 and 2017 thanks to in-app ads these companies placed in mobile games he developed.
The amount translates to some VND1.7 billion ($73,000) worth of monthly income. Vietnam’s personal income tax threshold is currently set at VND5 million ($215) a month.
According to the municipal taxman, more than five months after he had been summoned and asked to pay the tax arrears, T.D.P. has so far paid only VND2.9 billion ($124,700) and still owes VND1.162 billion ($49,966).
The Ho Chi Minh City tax authorities thus decided to freeze T.D.P.’s account for one month starting from November 15, 2018 to collect the remaining amount. However, the app developer’s bank account was reportedly empty.
According to T.D.P., he knows “at least four to five other cases” who made a fortune from similar online channels but are not paying any income taxes.
The Ho Chi Minh City Tax Department said it acknowledges another case in which an individual with a household registration in the central province of Quang Nam also earned more than VND20 billion ($860,000) from providing services to Google, proof that becoming ‘millionaires’ through content creation is not one in a million in Vietnam.
|A woman watches a video by a content creator on Youtube. Photo: Ngoc Phuong / Tuoi Tre|
A recent review launched at the four major state-owned banks of Vietnam in Ho Chi Minh City has showed that Google, Facebook, and YouTube paid local entities VND1,114 billion ($47.9 million), of which 598 organizations received more than VND512 billion ($22.01 million) while 17,130 individuals got VND602 billion ($25.89 million).
An officer at the municipal tax department believed that the number could be much bigger if the tax watchdog launches a more detailed research.
But so far only a tiny fraction of these fortune makers pay taxes, and there are cases when tax authorities are unable to contact those with incomes from Google, Facebook and YouTube to remind them of their tax duties.
Neither side wants to pay tax
According to data from market research company ANTS, spending on online advertising in Vietnam in 2018 was estimated at $550 million, of which Facebook ads made up $235 million and Google, $152.1 million. The two online ad giants collectively accounted for 66.7 percent of Vietnam’s advertising market share last year.
ANTS also forecasted that in 2019, Vietnam’s online ad revenue will reach about $648 million, with $275 million going to Facebook and Google expected to take $174.9 million.
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.
Accordingly, any of these payments must be subject to tax duty by the contracting parties on behalf of their foreign contractors before paying. This ruled is resulted from a long controversial period the tech titans refused to pay these taxes and forced their Vietnamese partners to cover them.
With the obligations kicked to the shoulders of the contracting entities in Vietnam, they in turn, also take a shot at avoid the taxes by paying Google and Facebook via international credit institutions, without deducting the foreign contractor tax. Those in Vietnam even choose not to declare these payments as operational costs in their tax returns.
In this way, Vietnam loses thousands of billions dong of taxes every year.