Challenges in tax management of e-commerce

The potential to increase state revenue collection in Vietnam's e-commerce sector is still very large.

Huge potential for revenue collection

E-commerce is an indispensable trend and increased growth in the digital economy. It has been proved through revenue collection of tax management authorities in recent times.

According to the General Department of Taxation, 14 corporations, large technology companies in the world and eight e-commerce exchanges operating cross-border that generated revenue in Vietnam have fulfilled tax obligations.

In the 2018-2019 period, revenue from Vietnamese organizations signing online advertising contracts with foreign organizations which do not have a legal entity in Vietnam (Google, Youtube, Facebook) reached nearly VND4,100 billion.

In Hanoi, according to data from Hanoi Tax Department, businesses and individuals engaged in e-commerce and digital platform accounted for nearly 6% of total revenue and 10% of revenue from production and business activities in 2021.

Thanks to implementing a series of solutions such as communication, dissemination, and support to make tax declarations and payments, in 2021, some individuals have voluntarily made tax declarations and tax payments with an amount of revenue up to tens of billions of VND.

For example, there is a typical taxpayer (28 years old, living in Cau Giay district) who has created software posted and paid by Google Play and App Store applications with a total income of up to VND330 billion. The amount of tax that this individual has paid is VND23.4 billion.

Although the tax revenue collected from the e-commerce sector is not great compared to its potential, it has contributed to increasing the annual revenue of thousands of billions of VND for the state budget. In the context of the Covid-19 pandemic outbreak in 2020, the business method has changed rapidly and sharply from traditional to e-commerce. People's consumption habits have also changed when they made transactions and purchased goods and services through e-commerce. Therefore, the potential for increasing state revenue in Vietnam's e-commerce sector is still very large.

Difficult to manage

Despite the great potential, the tax administration and revenue loss prevention in this field are facing many difficulties. Mrs. Nguyen Thi Lan Anh, Tax Administration Department of Small and Medium Enterprises, Business Households and Individuals (General Department of Taxation), said that the biggest difficulty in e-commerce tax management was fully managing resources and taxpayers. In terms of the digital economy, organizations and individuals can operate cross-border business activities without being taxed by any country according to traditional tax management principles. All countries are based on the physical presence of taxpayers, while businesses and individuals can distribute income to the most tax-friendly locations by following the regulations of each country.

"Because it is difficult to determine revenue sources and taxpayers, it is also very difficult for tax authorities to determine tax base. The reason is that, in the digital environment, business activities can be carried out through the website present in a certain market area without requiring the physical presence of the taxpayer in that area. In other words, the regulatory scope of the tax law is based on the "physical presence" of the business organization is the current principle of taxation. A typical example of this activity is online advertising and interactive activities through social networking platforms," Ms. Nguyen Thi Lan Anh said.

Also, according to the representative of the General Department of Taxation, controlling cash flow is also not easy. In fact, along with the development of the digital economy, non-cash payment methods are also very diverse such as payment via bank, electronic payment, peer-to-peer payment (P2P), and cryptocurrency.

In Vietnam, the control of domestic e-commerce transactions is more difficult when the payment system of COD (cash on delivery) is more commonly applied than non-cash payment methods. This is also another difficulty for tax authorities when managing taxes for e-commerce businesses.

Currently, the fight against loss of revenue has been promoted through the collaboration between tax authorities at all levels with local authorities, including the police, commercial banks, telecommunications companies, companies operating in the field of information technology, transmission, and providing network infrastructure in the area to fully update the information of organizations and individuals engaged in e-commerce activities. At the same time, organizations and individuals that engage in online business without declaring to the tax office or showing signs of violating the law are also subject to strict supervision and tax arrears collection by the tax office.

Recently, the Ministry of Finance approved and issued the project "Tax management for e-commerce activities in Vietnam". Accordingly, for the short-term roadmap from now to the end of 2023, the tax sector will focus on solutions to strengthen the management through a number of important solutions such as dissemination and support for taxpayers; modernizing tax administration; building a database for risk management; coordinating with relevant ministries, sectors, organizations and associations to exchange and connect information; inspecting, checking and comparing information of e-commerce activities.

For the long-term roadmap, by the end of 2025, the Tax sector will implement a number of important solutions such as researching and developing tax policies for cross-border digital services or amending and supplementing legal documents on tax, relevant specialized laws to meet the management of e-commerce in general and tax administration in particular, appropriate with international practices.

At the same time, the General Department of Taxation has put the portal for foreign suppliers into operation. It aims to create the best conditions for foreign suppliers which do not have permanent establishments in Vietnam to comply with tax laws. This is not only an address for foreign suppliers to register, declare and pay taxes, but also a place where foreign suppliers can look up information, and learn about the tax legal system and relevant legal policies in the field of e-commerce in Vietnam.