Major social network sites such as Facebook and YouTube face even stricter controls in Vietnam if a draft decree amendment on internet management gets approval, adding to the pressures for the popular sites to wipe out fake news and adhere to tax obligations.
According to Article 23 of the draft amendments to Decree No.72/2013/ND-CP stipulating the management, provision, and use of internet services and online information, social networks with more than one million users per month will have to get licensed through the Ministry of Information and Communications (MIC) to operate social networks in the country.
As of current time, Facebook and YouTube get about 2.6 billion and 1.9 billion users per month globally, respectively. Thus, both platforms have to be licensed through the MIC to keep their performance in Vietnam.
Under the draft, the MIC will attach measuring tools to such networks to regularly supervise the user base and the number of interactions on the platforms. Moreover, the ministry will check and issue documents to require companies to file dossiers to get licences for their social networks. Notably, the draft decree also regulates that licensed social networks would be allowed to charge usage fees and include live-streaming services.
The changes could be seen as part of a crackdown with the social media sites coming under increasing pressure in Vietnam and beyond to eradicate false news and harmful videos. Measures will also apply to tax obligations that the tech firms have ignored in Vietnam for a long time. The big US digital companies have enjoyed growing sales as people stay at home during the COVID-19 outbreak. Nevertheless, they have commonly been criticised for paying a tiny amount of tax on the large revenues which they generate in overseas countries.
In a recent move, India imposed a digital tax on global tech giants invoicing their revenues out of India. Meanwhile, Indonesia also decided to tax the social media groups to fund government spending on coronavirus relief.
In Vietnam, slapping tax charges on these digital heavyweights has been one potential option for local authorities as the groups have yet to open representative offices and branches here. Recent research by the Vietnam Institute for Economic and Policy Research (VEPR) confirmed that Facebook and Google (operator of YouTube) are two US internet giants with massive advertising businesses in Vietnam but are yet to fulfil their local tax obligations. The research cited data from market research company ANTS saying that Facebook and Google alone account for 66 per cent of digital advertising market share in Vietnam. However, the companies implement business without an advertising partner in Vietnam and collect money on their accounts. Thus, it is hard to control advertising revenue generated in Vietnam and transferred overseas. This not only causes a loss of tax revenue for the state but also eats up the market share of local digital content companies.
According to ANTS, the total revenue of the local advertising market last year hit about $648 million, including Facebook’s $275 million, Google’s $174.9 million, and $180.9 million separating the other local companies. In 2020, the earnings in the whole market is forecast to hit $760 million, including $512 million from the two titans.
To prevent the loss of tax, the National Assembly in June 2019 adopted the amendments to the Law on Tax Administration, effective from July 1, outlining that all cross-border businesses that have been earning money from Vietnam have to perform tax registration, declaration, and payment. That means overseas cross-border service suppliers will have to directly authorise a third party to carry out the tax obligation even if they have no representative offices in the country.
To materialise the new regulation, the General Department of Taxation has been publishing tax registrations of companies on its website. Once they do not take the obligation, local authorities will automatically charge tax at the source. The Law on Tax Administration has already stipulated a regulation to allow banks to deduct from the companies’ accounts. Specifically, Clause 27 outlines that banks have to take the obligation of deduction and perform the tax obligation of the cross-border services suppliers, whose incomes are incurred from Vietnam. Currently, tax authorities have been working with the State Bank of Vietnam and other commercial banks to clarify standards, conditions, and develop guidelines for deducting activities per the regulations.
Vu Tu Thanh, deputy regional managing director at the US-ASEAN Business Council in Vietnam, said there is no sure-fire way to gauge exact revenue generated by Facebook and Google here. “The government is making efforts to reform digital payments so that transactions on these platforms are conducted via these payment gateways,” Thanh said. “In the long term, it is crucial for Vietnam to work with other countries to address this challenge.”
Vietnam Investment Review