Taxation body missing out on taxes from sharing-economy businesses
Businesses following the sharing economy model are facing problems in tax declaration. Because of the lack of regulations, the taxation body may be taxing inaccurately or missing taxpayers.
Difficult to collect tax
The Ministry of Finance (MOF) has released a report on taxes and tax management in the sharing economy.
The ministry says the current tax laws don’t differentiate between businesses following the traditional way and the businesses following a sharing economy model. The tax imposition and collection on sharing economy businesses are implemented in accordance with VAT, Corporate Income Tax and Tax Management Laws.
“For registered businesses, no matter whether it is a sharing economy or traditional business model, the taxation body can collect full taxes according to the type of business,” the ministry said.
However, the ministry admitted that the businesses which have headquarters overseas, but do business in Vietnam and have revenue in Vietnam, only pay corporate income tax under direct mode because Vietnam cannot manage the input cost overseas as they don’t have permanent offices in Vietnam.
This causes inequality between domestic and foreign businesses.
“The gaps in tax obligations of these types of companies in the sharing economy in Vietnam need to be fixed," MOF said, adding that it is necessary to set up policies to manage cross-border electronic payment to supervise the fulfillment of tax obligations of foreign partners doing business in Vietnam.
For example, the Vietnamese law now has a regulation on room sharing service. Online accommodation booking services and booking apps all have to comply with the tax laws.
However, in order to ensure the enforcement of the units that provide accommodation service under the sharing economy model, it is necessary to mobilize resources from relevant parties.
Also according to MOF, the businesses under the sharing economy model are facibg difficulties in tax declaration. This is because the laws still don’t recognize this type of business, and the taxation body is unsure about defining the nature of transactions as it relates to tax.
|Businesses following the sharing economy model are facing problems in tax declaration. Because of the lack of regulations, the taxation body may be taxing inaccurately or missing taxpayers.|
Log Lag, a cargo transformation startup following the sharing economy model, is meeting problems in tax declaration. Log Lag has had to fulfill tax obligations as a transport firm.
Its revenue is entered in accounts in accordance with the total transaction value of the shipments, which is much higher than the value the company actually collects as a connector.
If there is a trial taxation mechanism for the company to apply, it hopes it can minimize the risk in cash flow.
Meanwhile, the Luxstay Vietnam Company operates under the model of sharing apartments. After a period of operation and successful call for capital, the company is thinking of expanding and providing other sharing services.
In order to do this, MOF thinks the company needs an open trial mechanism.
Cash payment should be restricted to online transactions
MOF has admitted the risk of failing to collect tax from sharing economy businesses. It is difficult for taxation bodies to define their taxable revenue as their transactions are mostly electronic documents. Therefore, the taxation heavily relies on the businesses’ honesty.
As for intermediary service providers that are foreign contractors, it is also difficult for the taxation body to check, monitor and collect taxes from them, because they have not set up offices or branches in Vietnam.
It is not feasible to require service providers in Vietnam to declare tax and pay tax for foreign contractors, because Vietnam has signed 76 double taxation avoidance agreements.
Regarding P2P lending, MOF warned of risks in tax collection and forex management, because the people carrying out transactions are non-residents. If people intentionally deceive or impersonate others, Vietnam will fail to collect income tax arrears.
Besides, the popularity of cash payments in Vietnam also affects the defining of value of online transactions. State management agencies find it difficult to control cash transactions.
The tax management on overseas e-commerce platforms is ‘extremely difficult’ as admitted by MOF. International practice shows that there should be international cooperation among countries. It is necessary to join tax management forums or create regional tax management forums so as to obtain agreements on information providing and sharing.
OECD’s tax management forum is building a draft code of conduct for sharing economy, which clearly states the content and coordination solutions among countries for effective tax management.
Meanwhile, MOF plans to propose to the government new regulations to restrict cash payments for online transactions. Service providers would only accept payments via banks or intermediaries with bank transfer.
The Private Economic Development Research Board, under the Advisory Council for Administrative Procedure Reform, has proposed a 30% reduction in corporate income tax for all businesses this year.
The Government's 30% corporate income tax cut was a step in the right direction but it could have been more inclusive by offering support to small businesses that were in desperate need of cash due to the difficulties caused by the COVID-19 pandemic.