E-Commerce Tax Management: International Lessons Learned And Solutions For Vietnam In The Context Of Digital Transformation
02 Nov, 2022
The trend of digital transformation is gradually changing the culture of consumers and the way enterprises do business. This has led to challenges in the current tax management model in Vietnam. From the analysis of the current situation and experience of developed countries in tax management for E-commerce, the author has proposed appropriate recommendations to control, to manage and to exploit revenue from E-commerce tax more effectively in the context of the digital economy. This article is honored to receive the A prize from the Tax Writing contest with E-commerce organized by the Journal of Tax - General Department of Taxation Vietnam.
Digital transformation is occuring rapidly on a global scale and has become a leading development trend in the world since the industrial revolution 4.0 was initiated. The development of E-commerce, one of the most popular digital-based business forms, is strongly affecting many areas of socio-economic life in many countries. This trend is gradually changing the consumer culture of consumers and the way enterprises do business. Facing the rapid development of E-commerce, businesses need to change their strategies, production processes and business models accordingly to survive and develop.
However, in the context of the growing digitalization trend, the traditional tax management model in Vietnam gradually reveals many difficulties and inadequacies. Although there have been the first reform steps, in general, the tax administration for e-commerce in our country is still not effective. If this challenge is overcome, this will be a great opportunity to exploit the revenue from the inevitable and strong development trend of this business form.
Challenges in tax administration for e-commerce from a theoretical perspective
E-commerce activities are the conduct of part or the whole process of commercial activities by electronic means connected to the Internet, mobile telecommunications networks or other open networks. Accordingly, digital-based operations are the basic feature of E-commerce compared to other traditional business forms.
E-commerce is posing many challenges to tax administration in many aspects. This increases the possibility of tax loss or the risk of double taxation, causing unfairness between traditional and online transactions. Reviewing and synthesizing from previous studies, the author identifies challenges in tax mangement for E-commerce as follows:
The first challenge arises from the very digital nature of E-commerce. These digital factors make it difficult for tax authorities to control and to monitor how transactions are done.
Second, the development of e-commerce is associated with the expansion of multi-party business models and multiple payment methods. These models pose many challenges to traditional tax administration because it is difficult to authenticate business entities and transaction values.
Third, the above tax management issues are more complicated when paid in virtual currency or through virtual banks. Telecommunications companies are becoming increasingly important because this form of business relies heavily on their telecommunications infrastructure.
Fourth, internationally, the development of digital business models in general and E-commerce in particular has led to non-residents being able to operate in a country's market. Determining which countries are entitled to tax is also controversial because it is fundamentally different from the designed international tax rules.
Challenges in tax administration for e-commerce in Vietnam today
From the analysis of the current situation and a brief review of relevant studies in Vietnam, the challenges of tax administration for e-commerce in Vietnam can be summarized as follows:
Firstly, there is no separate legal document specifying tax obligations for E-commerce. The lack of specific regulations for E-commerce as a profession creates many difficulties in tax administration of these types.
Secondly, for the E-commerce model, transactions are carried out online, so companies and business individuals do not need a physical presence such as company headquarters and stores like traditional businesses.
Third, internationally, the determination of tax obligations in some cases of transnational e-commerce business is very difficult and complicated by the non-visible presence of business entities.
Finally, the problem of determining the implementation of transactions through E-commerce business models in Vietnam is more difficult and complicated when the popular payment method in our country is still cash.
Cash has been a popular payment method for e-commerce orders in Vietnam (Photo source: Vietnamnet)
Lessons learned on tax administration for E-commerce in some countries
With its strong growth, E-commerce is the main focus of tax debates in many countries around the world. Drawing from tax administration practices in some countries, lessons learned in tax administration for this subject can be summarized as follows:
Regarding the drafting and issuance of legal documents on tax: In March 2019, the Organization for Economic Cooperation and Development (OECD) also issued the document “The role of the creator of the digital platform in the collection of VAT/sales tax on online business activities”. Accordingly, the OECD recommends that countries require E-commerce platforms to have full and sole responsibility for determining the payable tax amount of orders, collecting and paying tax on behalf of the tax authorities. This has been successfully applied in developed countries listed as the UK, the US, Germany, and Australia, which have deployed and collected taxes through e-commerce platforms. In accordance with US tax law, digital platforms listed as Google, Facebook ... are responsible for collecting tax information of entities operating on the platform regardless of individuals or organizations to make deductions and report to the US tax agencies. If individuals and organizations do not properly declare their obligations, they will be deducted from their total worldwide income as at the rate of 24% applied by Google. This is considered an effective method in collecting taxes from individuals earning income from activities on foreign E-commerce platforms.
Regarding tax registration: Tax authorities in OECD countries handle most tax registrations of both businesses and individuals. In terms of ways taxpayers can register for taxes, most OECD countries provide more than one channel for taxpayers to use. The OECD report shows that 80% of individuals register online or through a mobile app.
Regarding the authentication of transaction subjects and arising transactions: The authentication of taxpayer data in OECD countries through the digital environment is relatively effective with a variety of methods. Most OECD countries have strict procedures in place to ensure that the person doing the transaction is actually the taxpayer. In order to determine the customer's location, some countries require the merchant to collect information about the billing address, the IP address of the device used, bank details or the country code by phone number. Finally, once registered, the business will have to file a tax return. In countries like Turkey or Mexico, suppliers are required to report monthly VAT collected. Several OECD countries are now expanding multi-step authentication, using taxpayers’ biometric information for identification, authentication and security.
Regarding tax filing and payment: OECD countries offer high levels of electronic filing and payment of taxes with a view to taxpayer convenience and security as well as reduced administrative costs. Two notable progress points to the efforts of OECD countries' governments in tax administration in general and tax administration for the digital economy in particular are: (1) Automatic data exchange; (2) “pre-fill” mechanism for individual and corporate taxpayers. Regarding payment of tax obligations, OECD countries also offer a variety of tax payment methods. In Canada, citizens have various options for how to pay their taxes (banking online, paying online with a debit or credit card, setting up a pre-authorized debit, paying at financial institutions or checks by mail). In it, it is interesting that tax payments are also made using a personalized quick response code (QR).
Regarding tax examination, tax inspection and cross-border taxpayer information exchange: Shi et al. (2019), Li (2017) and Yu (2018) all point out the need for a coordination mechanism between agencies. Tax administration with relevant government agencies, especially with customs authorities in tax inspection and examination for cross-border e-commerce in China. Meanwhile, the OECD report (2019) notes that although actual tax audits are still the main testing activity in OECD countries, modern risk assessment models and good quality data sources are providing tax authorities with more efficient ways of doing some specialized work. Accordingly, external data sources (international information exchange) play an important role.
Proposing tax management solutions for e-commerce
From the theoretical basis and analysis of the situation, the author proposes a number of solutions for tax management for e-commerce as follows:
(1) Applying digital to tax administration and upgrading information technology infrastructure capable of monitoring, controlling and effectively managing taxes for E-commerce business models.
(2) Completing the legal framework on tax policy and tax administration in a specific and comprehensive way for digital business models.
(3) Continuing administrative reform by simplifying and taking advantage of digital listed as online tax declaration and payment, online portal for organizations and individuals (including foreign enterprises) to facilitate convenience in tax compliance.
(4) Focusing on developing and improving the quality of specialized human resources with both tax expertise and information technology expertise, moving towards establishing specialized departments to manage these types.
(5) Promoting negotiations with regional and international countries to set out common rules on tax administration, determining the right to tax transactions and income arising from digital business models.
The article is expected to bring a certain reference value for tax authorities in reforming tax policy and tax administration for e-commerce in the upcoming time. You can find the full article Tax administration for E-commerce: Perspectives from international theory and lessons learned here. Author: Tran Trung Kien - School of Public Finance, College of Economics, Law and Government UEH.
This is an article in the series of articles spreading research and applied knowledge from UEH with the message “Research Contribution For All”, UEH cordially invites readers to watch the next Knowledge Newsletter DIGITAL ECONOMY #64.
News, photos: Author, UEH Department of Marketing and Communication
Audio: Ngoc Quy
