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Vietnamese digital service providers set up shops overseas to avoid VAT tax
Vietnamese digital service providers have been setting up shop outside of the country to lessen their tax burden, commented the Vietnam Chamber of Commerce and Industry (VCCI) on the country's latest draft of the Law on Value-added Tax (VAT).
Software engineers during working hours at FPT Software, a global IT services provider and one of the leading IT companies in Việt Nam. — FPT Software Photo
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Under current regulations, internet-based services, digital content creation, electronic gaming and app-building companies enjoy 0 per cent VAT tax. These have also been among some of the fastest-growing companies in recent years, at an average growth of 11 per cent annually. Last year alone, they together fetched US$20 billion in revenue generated overseas.
The chamber, however, said many companies have been forced to set up operations overseas to avoid the 10 per cent VAT, which according to them, was still collected because "tax officers could not distinguish between digital services meant for domestic consumption and those for export.".
They were asked to provide all data related to intermediary platforms such as Google and Apple, users IP, bank transactions, contracts and emails to the tax authority with many having to submit two different dossiers.
"More than a few individuals and companies have set up operations elsewhere to avoid being taxed," said the VCCI.
The issue has been acknowledged by the Ministry of Finance (MoF) during the process of drafting a new VAT law. According to the ministry, it's difficult for the tax authority to determine whether a company's digital services were consumed inside or outside of the country.
The ministry has proposed instead of a 0 per cent VAT, they should be subjected to a 5-10 per cent VAT tax. In addition, the ministry said the list of businesses exempted from VAT tax will be narrowed down significantly.
The VCCI, however, said a VAT tax will only hinder Vietnamese companies' ability to compete on the international market as most of their customers are foreigners, and so are their competitors.
"A 5-10 per cent VAT tax will likely result in higher prices, meaning lost customers, market shares, difficulties in growing, and ultimately, employees losing jobs and less foreign currency reserve." said the chamber.
The chamber said the digital service industry, which typically requires skilled workers but low capital requirements, has proven to be a good fit with Việt Nam's development model. The proliferation of Vietnamese digital services in foreign markets can also help boost the Southeast Asian country's soft power. While there were cases of abuse, the 0 per cent VAT tax has produced strong results.
"The chamber, therefore, calls for the continuation, without any changes, of the current 0 per cent VAT tax," said the VCCI.
During a recent meeting of the National Assembly's (NA) Standing Committee, a report by the NA's financial committee also said that an increase in VAT tax hurts Vietnamese businesses in digital transactions, marketing, sales and logistics.
Head of the NA's Economic Committee Vũ Hồng Thanh said in the event the VAT tax increase went through companies will likely attempt to pass it onto their customers, leading to higher prices.
"We must carefully consider the factors at play that impact Việt Nam's business and investment environment, as well as Vietnamese businesses' ability to compete in the global market," said Thanh.
The chamber advised the ministry to review and study guidelines introduced by the Organisation for Economic Co-operation and Development (OECD) governing digital economic activities, which have been implemented by numerous countries around the world.
Since 2021, Việt Nam has required foreign digital service providers to declare and fulfil their tax duties for services consumed by Vietnamese users. The VCCI suggested the ministry apply the same procedures and treatments to Vietnamese companies to determine if they are eligible for the VAT tax exemption.
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