Challenges for Tax Administration on E-commerce

Vietnam is step by step becoming one of the potential e-commerce markets in the region as well as in the world. In order to guarantee fair tax collection and anti-tax evasion, state agencies have been progressively building a legal framework to effectively administer the e-commerce activities in the country.

The regulatory system of tax administration on e-commerce 

In the recent years, the National Assembly, the Government and the Ministry of Finance have governed a number of regulations to improve the taxes collection on income of overseas entities, business households and individuals who carry out business on the digital platform in Vietnam. Specifically, Decree 126/2020/ND-CP and Circular 80/2021/TT-BTC guiding the Law on tax administration No.38/2019/QH14 requires commercial banks and payment intermediaries to withhold and remit tax on behalf of overseas entities conducting e-commerce activities with Vietnam organizations and individuals which do not have a permanent establishment in Vietnam and do not voluntarily register, declare and pay taxes in accordance with Circular 80.  Meanwhile, Circular 40/2021/TT-BTC requires that e-commerce platform owners in Vietnam to declare and make tax payment, including value added tax and personal income tax on behalf of individual goods and services suppliers.

Before the Law on tax administration 38/2019/QH14, Decree 126, Circular 80 and Circular 40 took effect, tax regulations had failed to reach its efficiency and equality in state budget’s revenue collection due to the lack of tax withholding and payment mechanism. Rather, tax compliance obligations of such offshore suppliers and individuals doing e-commerce business are mainly regulated by the circulars of the particular tax laws, particularly the Law on Personal income tax, the Law on Foreign contractor withholding tax. 

Concern and confuse 

According to Decree 126 and Circular 80, commercial banks and intermediary payment service providers are responsible for withholding and making tax payment on behalf of overseas conducting e-commerce business activities through digital platforms with Vietnamese individual suppliers without permanent establishments in Vietnam who do not voluntarily register, declare and pay taxes. This regulation has brought up certain unclear and confusing concerns to commercial banks and intermediary payment service providers. For instance, determination of withholding tax rates imposed on goods and services supplied by offshore suppliers for purposes of withholding and declaring taxes in accordance with requirements at the laws on VAT and CIT (Clause 2, Article 81, Circular 80) on behalf of offshore suppliers is a difficult technical requirement that any commercial banks and intermediary payment service providers will have to face. In addition, commercial banks are also required to keep track of the money, payment transferred outbound to overseas suppliers and extract a report to the General Department of Taxation on a monthly basis.

For domestic e-commerce activities, Circular 40 stipulates that e-commerce platform owners is responsible for declaring and remitting personal income tax and value added tax on behalf of individuals providing goods and services. Tax withhold and remitted on behalf is determined based on the applicable tax rate of each sector or business line. In terms of nature, an e-commerce platform owner is not an income-paying body, but, instead, only provides technological infrastructure to connect and facilitate transactions between sellers and buyers. The requirement to manage sellers' information, provide business information, and declare and proceed tax payment can add intensive burden on administration, human resources and operating costs onto the e-commerce platform owners. 

Necessary roadmap and practical mechanism  

At the moment, the Ministry of Finance has been working with enterprises, business associations to consult for ideas for a draft circular guiding on necessary roadmap for Circular 40 as well as further detailed guidance on implementation of e-commerce tax administration guidance at Circular 80 for the objective of consistent tax administration policies and the rationality for commercial operation.

Many countries in the world have also been implementing e-commerce tax administration policies. In terms of tax administrative tools, developed countries such as some EU countries and China have built applications which are integrated to work on websites being e-commerce platforms to extract data which can contain taxable subjects, transaction value, types of goods and services, then synchronize with the tax authority's database, thereby determining the amount of tax collectable or facilitating tax inspection purposes.

For non-resident e-commerce businesses, an online portal for offshore suppliers to register, declare and pay tax online should be considered by some countries. Circular 80 has introduced this method, which is executed via the Information Electronic Portal of the General Department of Taxation. Still, the implementation will require more investment in technological infra-structure as well as specific methods to manage efficiently and synchronizedly.  

For the scheme of withholding and paying tax through commercial banks, a number of countries in the world have already applied this method; however, given some commercial banks are not able to recognize e-commerce trading transactions as well as due to certain tax-related issues, this scheme still remain very challenging at the moment. However, the tax authorities in many countries have been considering and developing some specialized applications and tools to integrate with commercial banks' database to serve the tax administrative purposes.

In summary, establishment of a better legal framework to create an equal e-commerce playground and ensure the tax budget collection for the State is a principled and important move at the present. However, the tax authorities as well as the competent state agencies should consider building the appropriate mechanism and solution to ensure the optimization of tax administration objective at the same time mitigate the human, time and capital resources of e-commerce platform owner enterprises and credit institutions in order to create the most ideal condition for such businesses to focus on their business strength.

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