New rule reshuffles tax burden

Illustration photo. Source: freepik.com

On June 1, the Ministry of Finance (MoF) issued Circular No.40/2021/TT-BTC to extend the collection of VAT, personal income tax (PIT), and tax administration from business households and individuals operating on e-commerce platforms.

Under the circular, from August 1, the owners of e-commerce platforms will be responsible for declaring and paying tax on behalf of the individuals according to a roadmap announced by the tax authorities. While this is not yet possible, as a temporary measure, e-commerce platform owners are now legally obligated to provide information related to individuals’ business activities on their platforms at the request of tax authorities.

The income threshold for business households and individuals to be subject to VAT and PIT will remain at VND100 million ($4,350). Taxpayers include individuals earning income from e-commerce businesses as well as digital content and service provision.

Circular 40 is part of the ongoing regulatory clampdown on Vietnam’s e-commerce market. With the new regulation, the government can now ensure e-commerce platforms play their part in tax collection. The circular will also create a level-playing field for brick-and-mortar retailers which have been fighting from a tax disadvantage in past years.

Tracking these e-commerce platforms to ensure VAT and PIT are paid through data sharing and extending liability to platform owners will allow local tax authorities to focus enforcement efforts on the relatively few marketplaces rather than the millions of vendors operating through them.

E-commerce platforms, including the likes of Shopee, Lazada, Tiki, and Sendo, will have to declare and pay tax for their online sellers from August 1, but many questions remain unanswered. A representative of Lazada Vietnam said that it is managing online sellers across many countries so the app is built uniformly to ensure the efficiency and safety of the e-commerce platform.

Any technical change to serve tax management will require close coordination between e-commerce platforms and local tax authorities. To accommodate this work, Lazada has proposed extending the roadmap to implement the new regulation. In addition, she suggested the clarification of which tax authorities are entitled to request businesses to provide information as well as the exact information businesses will have to disclose to ensure information security and avoid clashes with other laws.

Meanwhile, a spokesperson for Shopee Vietnam said that regulations need to provide clear guidance on distinguishing business households and individuals as e-commerce platforms will only have to declare and pay tax on behalf of individuals. Clear classification will help e-commerce platforms to upgrade their apps to comply with Circular 40.

She added that regulatory bodies should also pass regulations to manage individuals selling on social networking platforms to ensure fairness.

Voicing agreement, Nguyen Ngoc Dung, vice chairman of the Vietnam E-commerce Association added, “The new rules will trigger inequality between e-commerce and social commerce, such as Facebook. Inevitably, this will discourage businesses from increasing their presence here via e-commerce, which goes against the government’s policies to encourage the development of the digital economy.”

He also voiced concerns over major challenges stemming from the new tax regulation. Specifically, due to the short time until Circular 40 comes into effect, businesses will find it difficult to prepare data in time to report to the tax authorities.

Furthermore, there will be great geographic disparities as according to Article 45 of the Law on Tax Administration, tax declarations have to be submitted to local tax authorities where the tax subject is physically located. However, e-commerce platforms maintain extensive networks with a myriad vendors located across many cities.

“This will create conflicts with other regulations,” Dung warned.

Moreover, by creating additional administrative procedures, the new circular clashes with Article 3.1 of Decree No.63/2010/ND-CP and the Law on Promulgation of Legal Documents 2016.

Requests to provide information also need to ensure compliance with current regulations on the protection of personal information in the Law on Cybersecurity, the Law on Protection of Consumers’ Rights, and the Law on E-transactions, Dung added.