Although the rule that e-commerce platforms must be responsible for declaration and payment of both value-added tax and personal income tax on behalf of business individuals and households is a necessary and reasonable, the legal basis for that rule is open to debate
Article 8.1.d of Circular 40/2021/TT-BTC promulgated by the Minister of Finance on June 1, 2021 about “Guidelines on value added tax, personal income tax and tax management for business households and individuals” (effective from July 1, 2021) stipulates: “Owners of e-commerce platforms” are responsible for declaration and payment of value-added tax and personal income tax on behalf of those individuals who are sellers on their platforms. In other words, e-commerce sites must play the role of a tax collector that withholds 1% from sellers for value-added tax and 0.5% for personal income tax. While they are still not able to do so, e-commerce platforms are obliged to provide tax authorities with data on the personal information of sellers and their business transactions.
It is nothing new that there are regulations on tax rates, tax calculation methods, taxable objects and taxpayers (including those paying on behalf of others) for value added tax and personal income tax specifically designed for the group of business individuals, which can be found in the Law on Value Added Tax and the Law on Personal Income Tax from years ago. Meanwhile, the payment of tax on behalf of others, also known as tax withholding or tax retention, has been stipulated in a number of documents such as the Law on Value Added Tax, the Law on Personal Income Tax, and the Law on Tax Administration.
However, for the first time, the law assigns e-commerce platforms the task of withholding both of the above taxes when providing services to online sellers. Although such regulation proves necessary and reasonable, its legal basis remains debatable.
The legal basis
Concerning personal income tax, income-paying organizations and individuals up to now have been in charge of declaring, withholding (for each and every income payment of VND2 million or more), paying and settling this tax on taxable incomes paid to taxpayers as prescribed in Article 24.1.a, the Law on Personal Income Tax 2008 (amended in 2012, 2014 and 2020). However, in this case (according to Circular 40), e-commerce sites are required to collect personal income tax even though they are not income payers for sellers, but just their e-commerce service providers.
As for the payment of value-added tax on behalf of business individuals, the legal basis is even more unclear. It is because Clause 11.2.a of the Law on Value-Added Tax 2008 (amended in 2013, 2014 and 2016) only determines the VAT withholding responsibility of the Vietnamese party purchasing goods from foreign organizations and individuals doing business without a permanent establishment in Vietnam.
Also, Circular 40 does not consider this as a business cooperation activity between an organization and an individual to delegate the former the responsibility for tax declaration and payment according to Clause 7.5.c, Decree 126/2020/ND-CP of the Government dated October 19, 2020 with “Details on a number of articles of the Law on Tax Administration” (not specified in other tax-related laws either).
In other words, Circular 40 has set out a good solution for proper and sufficient tax collection from business individuals, but it gives e-commerce platforms new obligations that cannot be found in any tax-related law.
Besides, essentially, tax collection is a job of taxmen, but is in this case delegated to someone else, who should at least get paid for this.
Feasibility and incongruity
The aforesaid regulation on tax declaration and payment on behalf of individuals is completely feasible, since e-commerce sites with their technology and the way they operate always know how much sellers earn and can easily deduct any sum from them. If this regulation is strictly observed, tax losses will be reduced, meaning individual sellers will have to pay taxes and pay more of them when selling goods via e-commerce channels.
However, at the same time, this will probably discourage sellers from doing business on e-commerce platforms, where their taxable incomes will be sufficiently deducted, a disadvantage compared to other channels. Even if an individual’s income is not high enough to get taxed (VND100 million a year or less), they still have to temporarily pay the two taxes mentioned above. And even if a business individual is making losses, they still have to pay 0.5% of income tax on their total sales. In many cases, therefore, business individuals and households can no longer enjoy advantages, or even are at a disadvantage compared with enterprises when it comes to tax, especially income tax.
In addition to the above issue, Circular 40 stipulates that large-scale business households (equal to or bigger than small-sized enterprises) must make tax payments on a monthly “declaration” basis the way enterprises do (rather than in a lump sum as before).
That said, since the laws so far have not properly defined the legal status of business households, there will still be incongruity, injustice and inequality in tax obligations between enterprises and business individuals.
By Lawyer Truong Thanh Duc(*)
(*)Director of ANVI Law Firm, Arbitrator of VIAC