Tax clampdown on online incomes

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The individuals, including vendors, well-known Facebookers and YouTubers, as well as game writers, have made large incomes from the platforms, but have “forgotten” their tax obligations.

On the afternoon of August 14, an individual in the central province of Quang Nam, who had earned VND17 billion ($752,212) from Facebook and Google, came to the Quang Nam Tax Department after receiving the department’s notice to receive guidance on paying the taxes in full. The Ho Chi Minh City Tax Department previously sent a notice to the Quang Nam Tax Department to verify and collect tax from this individual.

Prior to this, the decision to collect VND4.1 billion ($181,415) in taxes and fines from a game writer in Ho Chi Minh City who made VND41 billion ($1.81 million) from Facebook and Google in 2016-2017 was the department’s first salvo in the initiative to collect tax from online activities.

A week ago, the writer paid VND3 billion ($132,743) in taxes, but has yet to pay the VND1.1 billion ($48,672) fine issued for late payment.

However, the two cases are just elements of the larger picture involving nearly 14,000 accounts doing business via these platforms. In early August, the Ho Chi Minh City Tax Department sent similar notices to account holders, but only a few of them have appeared at the department. The issue was discovered when the department instructed banks to check all money transfers related to Facebook and Google to look into their tax compliance. During the checks, the department also discovered a large number of accounts receiving money from the platforms.

Nguyen Nam Binh, deputy director of the Ho Chi Minh City Tax Department, called on companies and individuals to declare taxes when receiving money from overseas organisations, especially the income from technology companies for app and game programming. Binh also said the department will take a more proactive approach in collaborating with local banks for effective tax management.

According to tax regulations, individuals doing business on Facebook, Google, and YouTube with an income exceeding VND100 million ($4,424) per person have to pay 7 per cent tax, including 5 per cent for value-added tax and 2 per cent personal income tax. However, online sales tax collection remains challenging for the local tax authorities.

Luu Duc Huy, director of the General Department of Taxation’s Department of Tax Policy, pointed out that commercial banks are not obliged to provide transaction information on a regular basis, but only when the local tax departments requests them to review bank accounts.

Huy said that Vietnam has around 60 commercial banks and millions of bank accounts. Such customer information is confidential and must not be disclosed. This poses a challenge for online sales tax management, especially when individuals generate income from foreign websites.

While individuals doing business on the platforms are being pushed to pay taxes in full, if technology companies like Facebook and Google continue doing business in Vietnam, they will also be under the Vietnamese authorities’ supervision after the Law on Cybersecurity comes into effect in early 2019. The law stipulates that domestic and foreign technology companies storing data related to Vietnamese people or organisations have to establish representative offices and branches in Vietnam. Accordingly, Facebook and Google will have to obey Vietnamese regulations, including paying tax to the Vietnamese government via domestic bank accounts.

Currently, data about Facebook and Google’s 2016 and 2017 revenue in Vietnam has yet to be officially released, but data from 2015 released by Vinalink JCS shows that Facebook led the online advertising market in Vietnam with the revenue of VND3 trillion ($132.7 million), followed by Google (VND2.2 trillion or $97.3 million).

According to Article 13 of the Law on Corporate Income Tax, Facebook and Google may be classified as high-tech companies and may therefore be eligible for the preferential tax rate of 10 per cent for the first 15 years.