This comment was made by the Vietnam Confederation of Commerce and Industry (VCCI) when commenting on the amended Value Added Tax (VAT) Law.

According to current regulations, business export services on the Internet, production of digital content, applications, video games … enjoy 0% VAT. This is also a fast-growing industry, averaging about 11% per year. Last year, the export turnover of services by domestic companies was about 20 billion USD.

However, VCCI quoted many businesses as saying they were still imposed a 10% tariff because “tax officials could not distinguish between domestic consumer services and exports”.

According to the organization, businesses have provided tax authorities with a lot of information such as data of intermediary platforms (Google, Apple), user IPs, bank payments, contracts, emails. There are even units that are forced to separate the product into two versions for domestic and foreign markets, but still not accepted by the tax authorities.

“Many individuals and businesses set up more companies abroad to provide services to customers around the world, in order to reduce tax liability,” VCCI said.

This problem was also acknowledged by the Ministry of Finance when amending the VAT Law. According to the agency, services are intangible, so determining consumption in Vietnam or abroad is “very difficult”, for both tax authorities and taxpayers. Moreover, the identification will increase administrative costs for the tax industry.

Therefore, instead of the current zero percent, the ministry proposed taxing most export services to 5-10% or not deducting inputs due to non-taxable status. Non-taxable sectors were narrowed down, leaving only international transport, overseas vehicle rental and some related services.

Commenting, VCCI said that such regulations will increase tax costs of many Vietnamese enterprises providing services to foreign customers. Meanwhile, most companies in this industry are competing with competitors from other countries.

“If they are subject to VAT of 5-10%, it will lead to the risk of losing customers, market share, difficult opportunities for development,” VCCI commented, adding that this regulation may lose job opportunities in the country, reducing national foreign currency revenue.

Particularly for the software sector, export products will change from 0% to non-taxable. That is, enterprises are not allowed to deduct inputs, causing production costs to increase by 2-3%.

In fact, export services are often industries that require highly qualified labor, do not require large investment capital like the processing and manufacturing industry. According to VCCI, these are sectors that are suitable for Vietnam’s economic context. At the same time, exporting services on the Internet helps increase the country’s soft power. The fact that some units cheat to profit from tax refunds, but this cannot deny the benefits of the 0% export tax policy.

“Request the Ministry of Finance to keep regulations and allow export services to enjoy the tax rate of 0%,” VCCI proposed.

At a meeting of the National Assembly Standing Committee last month, the examination report of the Committee on Finance and Budget also said that the increase in taxes on services exports will affect service sectors such as payment, marketing, sales support centers and logistics.

Chairman of the Economic Committee Vu Hong Thanh quoted businesses as saying that the tax payable will be included in costs, leading to an increase in export prices. “It is necessary to calculate to avoid affecting the investment and business environment and the competitiveness of Vietnamese goods,” he said.

Regarding the difficulty of distinguishing domestic and foreign users from export services, VCCI said that in fact, the Organization for Economic Co-operation and Development (OECD) has guided and been applied by many countries. Vietnam accepted this recommendation of the OECD when collecting import service tax. From 2021, foreign suppliers providing services in Vietnam will have to declare and pay taxes. The revenue generated by these companies is determined through many sources of information, such as credit cards, bank accounts, IP addresses, landline locations, etc.

Thus, the organization said that the law requires foreign enterprises to use the above information to collect import service tax, but does not allow domestic companies to use it to enjoy 0% tax when exporting services. This is the point of incongruity.

Therefore, in addition to maintaining 0% VAT, VCCI suggested that authorities should come up with a way to determine revenue coming from abroad according to the same method as when taxing imported services.

Source: VnExpress
06/05/2024