Amend the law to collect taxes from Google and Facebook?

The Ministry of Finance has just proposed that the State Bank coordinate research to require advertising services on Facebook and Google to pay through the domestic gateway of the National Payment Corporation (Napas), in order to control revenue and collect taxes.

In addition, the Ministry of Finance also proposed that telecommunications and Internet service providers must open official representative offices in Vietnam and declare and pay contractor tax.

However, according to experts, to do this, it is necessary to amend the law and a series of related regulations.

Why go through Napas gate?

Explaining the reason for this proposal, according to the Ministry of Finance, Internet activities are cross-border transactions.

Most foreign network operating companies are not registered for business and do not have official representative offices in Vietnam, causing difficulties for the tax industry in tax management for business activities via the Internet.

Facebook and Google's online advertising revenue in Vietnam is up to thousands of billions of VND each year.

Currently, Google and Facebook provide online advertising services to the Vietnamese market through two methods.

In particular, through agents in Vietnam, these businesses will have to fulfill tax obligations according to regulations when generating revenue.

But tax collection through this method depends on the tax awareness of agents in Vietnam.

Meanwhile, the method of buying, selling and paying online via credit card or e-wallet is not clearly regulated. The service buyer will suffer because there is no invoice so it will not be included in the reasonable cost.

In fact, the service buyer will legalize it by purchasing an invoice from another service. This makes it difficult for the tax department to accurately grasp the true value of the cost paid for the service online.

With payment based on the number of paid clicks, determining the advertising revenue of foreign carriers is also not easy, because it is necessary to compare information between the buyer's (paying) bank and the seller's.

The purchasers of services from foreign organizations are individuals, so it is difficult to have a basis to request a deduction of foreign contractor tax when purchasing services.

Consumers are paying taxes instead.

A representative of the Ho Chi Minh City Tax Department said that according to regulations, because Google and Facebook are foreign organizations with revenue but do not establish legal entities in Vietnam, the paying organization is responsible for deducting and paying contractor tax on behalf of these entities.

Therefore, the responsibility to pay taxes belongs to these organizations, but in reality, Google and Facebook stipulate that their revenues are after-tax, which means pushing the responsibility to pay taxes to organizations and individuals in Vietnam.

When paying through agents, if they want to get documents to include in the cost, businesses must pay an additional contractor tax (including corporate income tax and VAT) of about 10% for Google and Facebook advertising services in Vietnam.

However, not all organizations pay this tax, instead legalizing it with other expenses.

Meanwhile, because it is not included in the cost, individuals and businesses do not need to get documents, avoiding this tax, causing budget losses.

Online revenue in Vietnam as of 2015 of Facebook, Google and some other Vietnamese advertising companies

"According to statistics, Facebook's revenue in the Vietnamese market can currently reach 150 million USD/year, equivalent to more than 3,000 billion VND. Google ranks second with 2,200 billion VND (about 100 million USD).

These two units alone account for about 73% of the online advertising market share in Vietnam. If we can control all of this revenue, the budget will collect a huge amount of tax," he said.

Responsibilities need to be clearly defined.

To manage taxes of these units, according to tax expert Nguyen Thai Son, the law must first be amended.

Accordingly, along with the regulation that cross-border services such as advertising on Facebook and Google must be paid through domestic gateways via Napas, it is necessary to further stipulate that the responsibility for paying this contractor tax will belong to Facebook and Google.

Organizations and individuals in Vietnam will not have to pay this tax as they do now. In case the above two units do not directly declare the tax, the payment gateway will deduct it.

"The regulation that money must go through the payment gateway is a two-pronged arrow, one is to control revenue, the other is to control tax deductions.

However, to do this requires coordination between the Ministry of Finance and the State Bank, in which the State Bank will have to work with international card organizations," said Mr. Son.

However, the director of a card center at a joint stock bank based in Ho Chi Minh City warned that only when Facebook and Google establish legal entities in Vietnam and are governed by Vietnamese law can they be persuaded to make payments through payment gateways in Vietnam.

According to TTO