The article written by our Lawyer Nguyen Van Quynh of Phuoc & Partners, titled: “Collecting taxes from sellers on Facebook – is it an impossible mission?”
Why is it necessary to collect online sales taxes?
Vietnamese law on personal income tax affirms that all individuals earning business income are obliged to pay personal income taxes. This is the legal corridor to impose tax collection on sellers, regardless of where and in what form the transactions are made.
Collecting taxes from online individual sellers is not a fresh issue. Today, however, this topic has become “hotter”, particularly when state authorities seem determined to collect these tax amounts as soon as possible. The benefits of being an online seller are clear: no cost for leasing a premises or investing in facilitates; “ignoring” tax declarations and payment as required by law; skipping business registration; no extraneous concerns regarding matters of social order and security including signboards, sidewalks encroachment or parking lots; minimised labour cost compared to operating scope as people in other geographical areas can buy goods/services with just a mouse click.
It is no wonder that the number of online sellers has been growing and with very high monthly sales – sometimes much higher than what a middle-level office manager can earn. Collecting zero taxes from these sellers is obviously a loss to the State and is not fair to other taxpayers.
Management of Facebook sales channel and online selling
Currently, Vietnamese law acknowledges and manages two basic forms of electronic commerce including e-commerce websites used for sales (set up and owned by sellers themselves) and e-commerce trading floors (for sellers who are not the website owners). In the first form, the seller must give notice and obtain a confirmation from the Ministry of Industry and Trade. For the second form, entrepreneurs (individuals who have a registered business) must register the website providing e-commerce services and have this registration confirmed by the Ministry of Industry and Trade. Sellers must, regardless of where and how they engage with buyers, provide information on their business status as required by state authorities, to ensure State oversight over the business as well as figure out their tax obligations.
For social networking websites, Circular 47 stipulates that only when a social website provides a platform for sellers, it must be registered with the Ministry of Industry and Trade under the form of an e-commerce trading floor. Such platforms include: (i) allowing its members to open stores for displaying and introducing goods and services; (ii) allowing its members to set up a branch website for displaying and introducing goods and services; or (iii) featuring a trading column allowing its members to post news about trading goods and services, at that point, sellers on these social websites are obligated to provide their information to the State as discussed above.
However, Facebook is a social network which is not governed by Vietnamese law because it does not have a commercial presence in Vietnam and therefore is not required to obtain a license (issued by the Ministry of Information and Communications) for setting up social networking websites. In other words, Vietnamese law cannot touch Facebook or other social networks outside Vietnam. Thus, the Vietnamese State does not have sufficient legal grounds to require Facebook to provide details of its members as sellers. In order to collect taxes from Facebook sellers, the State would require a database of sellers, technical infrastructure, as well as systems and personnel for inspection, supervision and enforcement. This demonstrates the rapid development in social networks supported strongly by information technology growth, and which nullifies the current legal barriers. This problem is not unique to Vietnam either.
How about the possibility of collecting online sales taxes?
According to some commentators, state authorities could require commercial banks operating in Vietnam to provide the transaction information of sellers and buyers. This plan appears difficult to apply as most Vietnamese still stick to the cultural habit of holding cash. If there is a transfer through the banking system, the seller and the buyer may collude together to “dodge” any post-inspection whereby the buyer will describe the reason for transferring money for another purpose than payment for the goods purchase. Banks and state authorities therefore cannot identify the seller’s real revenue. And if a trading transaction is implemented in such way online, it is unclear whether the tax authorities have the capacity to fully grasp all the sale transactions of Facebook sellers holding accounts in many different banks.
Another idea is that Vietnamese tax authorities require Facebook to report seller information on its social network. But how can a dotcom company like Facebook be required to do that when it does not otherwise have any obligations to the Vietnamese State? Conversely, Facebook has an obligation to information confidentiality and user privacy protection under foreign law. Despite Facebook’s enthusiastic support for the Vietnamese Government, Facebook cannot know whether any actual transaction between a seller and a buyer happened or not. Sellers can merely post pictures with product descriptions and prices, and a viewer/buyer can just click “like” or comment. The seller and the buyer can then privately conduct the transaction, for example, by phone. The revenue of a Facebook seller is therefore difficult to accurately calculate.
Only buyers and sellers can know the existence of any actual transactions, their value, and hold such proofs of transaction as purchase vouchers, receipts, payment confirming messages and so forth. If the States wants to levy taxes on Facebook sellers, it should place the burden on buyers. By establishing an information system that allows buyers (who mostly already have personal income tax codes) to access and provide information on a seller, transaction value, and upload evidence of actual transactions to the system, tax authorities can know how much money had been transferred in the e-commerce transaction. As a “reward” to the buyer for assisting the tax authorities in providing information on who are obliged to pay taxes, the government may consider allowing a deduction of a particular percentage (%) of the buyer’s purchase costs from such buyer’s payable personal income tax in the year. Without an entitlement to benefits, buyers will not be proactive in trying their best to provide such information. Of course, to perform this plan, the State must invest in appropriate information systems and review and amend the legislation to create a legal framework for the same, including the calculation of the “monetary reward” for the buyer to provide information. In this case, the bonuses for buyers can be deducted from the taxes collected from sellers. This would need to be harmoniously calculated to ensure that the State collect taxes from Facebook sellers without punitively increasing a buyers’ personal income tax.
 Chapter 3, Parts 1 and 2 of Decree 52/2013/NĐ-CP
 Chapter II, Part 1 of Circular 47/2014/TT-BCT
 Chapter II, Part 2 of Circular 47/2014/TT-BCT
 Articles 27.6 and 37.5 of Decree 52/2013/NĐ-CP
 Article 6.1 Circular 47/2014/TT-BTC
 Article 6.3 Circular 47/2014/TT-BCT
 Decree 72/2013/NĐ-CP