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Tax management needs realistic solutions

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The 2020 white book on e-commerce released last month by the Department of e-Commerce and Digital Economy under the Ministry of Industry and Trade provides some legal updates relevant to e-commerce, the focus of which is the 2019 Tax Management Law

E-commerce is no longer a strange word to many Vietnamese who may engage in global trade transactions by making use of only a smartphone and a bank account. However, technology and economy ceaselessly move forward while laws always follow at a distance behind, and, in some case, may hinder development.

The 2019 Tax Management Law may arguably one of the legal documents most paramount to e-commerce over the past couple of years. A new notable point of this law relates to the stipulation that allows a seller to use electronic bills and documents in commercial transactions and in working with tax agencies. This stipulation will be officially valid as of July 1, 2022. However, early utilization is encouraged.

However, e-commerce is in itself a form of cross-border transactions. The boss of Facebook may sit in his air-conditioned office in Palo Alto in the U.S. state of California and comfortably count the money from Vietnam flowing into his account. Those transnational transactions are always a headache to governments as they want tax policies to both promote the healthy development of e-commerce while effectively preventing tax evasion.

To address this problem, the new management tax law sets a principle applicable to foreign firms without a permanent address in Vietnam but with e-commerce transactions here, or with business based on digital platforms here. These firms are obliged to fulfill their direct responsibilities or must authorize somebody to register, declare and pay taxes in the host country.

In reality, this is what taxmen have long preferred. However, after the measure has been legalized and become compulsory, will overseas companies comply with it? Or contrarily, what will taxmen react with their financial sanctions and management if service providers from afar ignore the new regulations? Obviously, even when concerned e-commerce regulations are governed in the new tax management law, e-commerce management on cross-border service provision still face challenges. Legal stipulations written down on paper and how to implement them in reality may be a world apart.

Should commercial banks be obliged to withhold taxes?

Furthermore, the 2019 Tax Management Law rules that commercial banks are responsible for “withholding, paying taxes on behalf of… organizations, individuals in foreign countries that conduct e-commerce activities generating income from Vietnam,” (Item 3, Article 27).

What this stipulation means may be the intention of gaining the upper hand in fighting tax dodging. Nonetheless, it is so easy to rebut this intention.

First, the registration, declaration and payment of taxes are always the right and obligation of taxpayers. They must be fully responsible to the law for accuracy, honesty and completion of their tax dossiers be they do it themselves or have somebody do it for them (via tax agents). All these clear regulations are included in the 2019 Tax Management Law (Articles 16 and 17). Therefore, in principle, nobody—a bank is no exception—has the right to withhold or pay taxes on behalf of a taxpayers without his/her consent or authorization.

Secondly, tax withholding is a function of a tax agency as it is a public right. Laws cannot indiscriminately assign this function to a commercial bank which is considered simply a business entity working for profit. Banks conduct services of account payments for customers in accordance with contracts signed by both parties. A bank may freeze a customer’s bank account only at the request of a competent State agency in certain cases and cannot withhold taxes in line with a general stipulation of a certain law.

Moreover, considering what the above stipulation has stated, we have not known yet how banks will “withhold, pay taxes obligations on behalf [of a taxpayer]” if the taxpayer in a foreign country does not open a bank account at a commercial bank in Vietnam. In this case, is it true that lawmakers want banks to “block” money transfer transactions from service buyers in Vietnam so as to withhold a certain percentage of tax payments to the total value of the money transfer? If so, this is infeasible because banks cannot distinguish whether a transaction conducted by a person is subject to contractor tax or not.

Notably, in reality, tax finalization is always subject to lag time. For instance, the dossier for annual tax finalization must be done not later than 90 days after the date of the end of the fiscal year. So why compel people doing e-commerce in foreign countries to pay the tax as soon as a transaction is carried out?

Furthermore, a commercial transaction between a consumer in Vietnam and a firm doing e-commerce in a foreign country is legal. Then the buyer is obliged to pay for the commodity and the seller has the right to receive adequately the agreed payment. Banks, governments or any other agencies have no rights to “touch” this money unless otherwise agreed. Here, the State should absolutely respect the freedom of contracting, which is an underlying philosophy of a market economy.

Finally, when a bank withholds and pays tax obligations on behalf of taxpayers, this action will incur costs. Banks may have to face risks and international disputes/litigations. Have lawmakers taken into account this problem? And who will pay costs and assume risks in the end?


It’s better late than never. Electronic bills are necessary to modern life. The sooner they are in use, the bigger the profit citizens will enjoy from them. Of course, it is justifiable to force foreign firms doing e-commerce in Vietnam to pay their taxable income. However, how to implement this obligation is a long way ahead.

The author of this article still doesn’t see any cogent reason for forcing commercial banks to “withhold taxes” on behalf of the State. Reversely, this regulation contradicts the very fundamental principles of the tax management law as well as long-standing practices in the banking system.

By Tran Thanh Nguyen

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