Ride-hailing drivers no longer have to worry about the tax burden

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From December 5, ride-hailing platforms will have to declare and collect VAT.

Enterprises must make the declaration

The provisions at Point c, Clause 5, Article 7 of Decree 126 clearly state: “If an organization does business with an individual, the individual does not directly declare tax. Organizations are responsible for declaring value-added tax (VAT) on all revenue from business activities in accordance with the tax laws and corporate tax administration, irrespective of the form of division results of business cooperation, at the same time, declaration and payment of personal income tax on behalf of individuals doing business cooperation.”

According to this regulation, from December 5, ride hailing platforms will have to declare and collect VAT on behalf. The collection tax rate is 10% of the total revenue generated, instead of the current 3%.

Explaining this, the General Department of Taxation affirmed that Grab, Be and Gojek are transport businesses, not technology solutions. Previously, because there were no legal documents, technology carriers declared and paid VAT on the part they were entitled to, rather than declaring and paying tax on the entire turnover. Currently, Decree 126 has completed the legal basis for the technology transport business, in accordance with the nature of economic generation as well as international practices.

Specifically, with VAT, businesses will have to collect and pay on behalf of consumers. Accordingly, the driver will not have to pay 3% VAT as currently, but the responsibility for the payment is with the business.

This regulation is true to the nature of arising economic activities, in accordance with international practice and tax laws. This is a tax that consumers pay, businesses just declare and pay instead. This new regulation does not increase tax obligations for individual drivers of ride-hailing vehicles, and may even reduce them because they are only subject to personal income tax, not VAT.

“The personal income tax rate for drivers remains the same at 1.5% for those earning VND100 million/year or more. As for the VAT obligation, the technology vehicle companies will be responsible for declaring VAT on the total revenue earned in accordance with the tax rates and tax declaration of the organization, not an obligation as a driver, because individuals must cooperate with the organization, they are not self-employed. This is completely consistent with the current regulations in the Law on Tax Administration and the Law on VAT,” Mr. Dang Ngoc Minh, Deputy Director of the General Department of Taxation, said.

Absolutely comply with the law

According to Grab, according to current regulations and guidelines as well as requests from the tax authority, Grab is responsible for collecting and paying the driver's partner's tax liability, including 3% VAT and 1.5% personal income tax to partners with income from VND 100 million / year, and calculated on the part of the revenue the partner receives after deducting the cost of using the application. Decree 126 (effective from December 5, 2020) and applies generally to all connected platforms, including Grab. Therefore, this unit continues to request the tax authority to guide and clarify some points in Decree 126.

“Grab's stance is to strictly comply with the law. From December 5, we will strictly comply with Decree 126, at the same time take appropriate solutions, ensure the full implementation of tax obligations under current law and ensure benefits for both users and drivers,"Grab said.

Commenting on this, an expert in the tax industry said that in fact, VAT is an indirect tax imposed on the added value of goods and services arising in the process from production, circulation to consumption. This tax is imposed on consumers. The same is true for the new rule of 10% for ride-hailing platforms. This is a tax that consumers pay, businesses just declare and pay instead.

“The VAT rate increased by 7%, from 3% to 10%, will increase the burden on consumers. When technology car companies declare and collect this tax on the total revenue per ride, that means the freight also increases. This requires car manufacturers to review their terms and policies and make certain adjustments to avoid damage because when prices rise, some customers may switch to other options,” this expert said.