Vietnam’s Digital Economy Faces Stricter Tax Regulations—Are You Ready?

Vietnam’s e-commerce market is witnessing remarkable growth, with revenue projected to reach $25 billion in 2024. However, the rapid expansion has posed challenges for tax authorities in managing tax compliance among online businesses. In response, the Ministry of Finance has drafted a new decree aimed at strengthening tax oversight in e-commerce. While these measures are necessary for tax fairness, the Vietnam Chamber of Commerce and Industry (VCCI) has raised concerns that certain provisions may place excessive burdens on small businesses and individual sellers.

Key Provisions in the Draft Decree

According to Article 7.2.a, individuals conducting regular business on e-commerce platforms without tax registration must file monthly tax declarations, reporting revenue, payable tax, and business expenses.

The draft also distinguishes between resident and non-resident individuals, with different tax rates applied accordingly. Residency status is determined based on Circular 111/2013/TT-BTC, which considers factors such as time spent in Vietnam and registered business locations.

Additionally, under Article 6.3, e-commerce platforms are required to submit tax deduction records to tax authorities to enhance transparency in tax collection.

VCCI’s Recommendations for Policy Adjustments

VCCI argues that several provisions in the draft could impose excessive administrative burdens on small businesses and individual sellers. To ensure a fair yet practical approach, the organization has proposed several key adjustments:

1. Allow Fixed Tax Rates for Small-Scale Sellers

• The draft currently does not allow small online sellers to pay taxes based on a fixed-rate system, assuming all transactions can be digitally tracked.
• However, VCCI points out that many small-scale sellers lack the financial resources to invest in sophisticated accounting software, making monthly tax declarations difficult.
• Proposal: Introduce a fixed-rate tax for sellers with a limited number of orders. Data on the number of transactions can be extracted from logistics providers.

2. Remove Business Expense Declaration Requirement

• The draft requires online sellers to declare detailed business expenses, including material costs, labor, utilities, logistics, and advertising.
• VCCI argues that this is unnecessary for small-scale sellers since tax calculations are based on revenue, and their informal business structures make it difficult to separate and accurately report expenses.
• Proposal: Exempt small-scale businesses from the requirement to submit business expense declarations.

3. Adjust the Definition of Taxable Revenue

• The draft states that taxable revenue includes the total amount paid by buyers on e-commerce platforms, including shipping and other service fees.
• VCCI contends that this is unreasonable, as sellers should only be taxed on their actual earnings from product sales, excluding additional service fees.
• Proposal: Taxable revenue should only be calculated based on the amount that e-commerce platforms remit to sellers.

4. Reduce the Administrative Burden on E-Commerce Platforms

• Requiring e-commerce platforms to submit detailed tax deduction records for all transactions would significantly increase compliance costs.
• Proposal: Maintain the current system where platforms deduct and declare tax directly, instead of submitting individual tax records to authorities.

Implications and Outlook

The proposed decree represents a crucial step toward improving tax compliance in Vietnam’s booming e-commerce sector. However, policymakers must strike a balance between strengthening tax collection and ensuring a business-friendly environment.

By incorporating VCCI’s recommendations, the government can create a regulatory framework that is both efficient and equitable, enabling the continued growth of e-commerce while ensuring fair tax contributions. Businesses, in turn, should proactively adapt to new regulations, as stricter enforcement is expected in the near future.