The tax man faces off against Facebook retailers in Vietnam

Authorities have asked social media retailers to pay up, but enforcement remains a challenge in a cash-driven country.

Dinh Thu Huyen’s broadcasts of everyday life, including feeding chickens and working in allotments, have helped her attract nearly 50,000 Facebook followers in Vietnam.

The web broadcasts have also earned her hundreds of millions dong a year from selling the products she cultivates online. However, she has never paid any tax.

Vietnam levies a 0.5 percent income tax and a 1 percent value added tax on sales of more than VND100 million ($4,400) per year. But the government is failing to collect taxes from many online traders as they mainly use cash transactions that are difficult to track.

However, local tax authorities have recently stepped up efforts to collect taxes from online businesses that use Facebook and other social media sites such as Instagram and YouTube.

District tax departments in Ho Chi Minh City have sent out tax demands to nearly 13,500 Facebook retailers in a move to target tax avoidance by online businesses.

In a similar move, the Hanoi Department of Taxation has sent text messages to 13,422 Facebook accounts that use the social media network as a retail platform.

The retailers have been urged to go to the department’s website to register their businesses and declare tax, Vien Viet Hung, the department’s deputy director, said.

To minimize tax losses, the Ministry of Finance is considering a plan to impose value added tax and income tax on sales with a value of VND1 million ($44) upwards, or multiple sales of a lesser value.

But the plan has not worried Huyen. “Tax authorities have not contacted me. Most of my customers pay in cash, so I don’t think they will be able to evaluate my sales and tax them.”

Many other online retailers on Facebook have the same attitude as Huyen. They don’t think tax authorities will be able to control their sales because they only promote fashion products via Facebook. The items bought usually change hands offline and payments are usually made in cash. Even goods shipped to the recipients can be sent either through the postal system or by private courier.

“I post photos and clips of my products on Facebook, but all transactions are conducted outside the platform,” said Nguyen Huy Dung, who has been selling watches online for several years. “How can tax authorities claim that my sales are large enough to be taxed?”

Many online retailers do not even register their businesses with local authorities.

Nguyen Thi Cuc, chairwoman of the Vietnam Tax Consultant Association, said Vietnam’s tax policy for online businesses is incomplete and therefore not compulsory. This poses a challenge for tax authorities when most transactions are still in cash.

Some experts have raised concerns that many online retailers use anonymous accounts for transactions, making it hard for tax authorities to regulate activities.

Many online retailers have said they would pay tax, but want a reasonable policy in place first.

Nguyen Thi Nhung, who sells cosmetics online, said: “It’s not fair if online retailers do not pay tax when brick and mortar businesses have to pay a raft of taxes and fees.”

“However, authorities should consider specific policies for retailers like me who conduct our business online,” she said.

Stressing the necessity of collecting taxes from online retailers, economist Nguyen Minh Phong said the state should complete tax and business regulations, facilitating tax collection to increase state budget revenues and ensure justice for all kinds of businesses.

Lucrative market

Vietnam’s young population – almost 60 percent are under 35 – is drawn to Facebook and the country has become one of the leaders globally in terms of penetration of social networks, Bloomberg quoted Monica Peart, senior forecasting director at EMarketer Inc, as saying.

The Vietnamese spend more time on the social network than users in most other Southeast Asian countries and are much more apt to use it as a platform to start a business, said Joe Nguyen, ComScore Inc.’s senior vice president of Asia Pacific.

“We haven’t seen this scale in other places,” he said. “Vietnamese are very entrepreneurial. Everyone wants to try to sell something.”

Online sales in Vietnam have expanded rapidly in recent years, currently accounting for 3.39 percent of the country’s retail market. The total retail market grew 10.2 percent last year to $118 billion, mainly fuelled by a growing middle-class with expanding disposable incomes and an increasing number of internet users.

The World Bank forecasts that Vietnam’s $200 billion economy is likely to grow to a trillion dollars by 2035. More than half of its population, compared with only 11 percent today, is expected to join the ranks of the global middle class with consumption of $15 a day or more by that time.

According to one estimate, about 30 percent of the population will be buying goods and services over the internet in 2020, with each shopper spending an average of $350 per year.

Just three years ago, Vietnam was ranked the smallest e-commerce market in Southeast Asia in terms of sales. Now its online retail is gaining momentum, with more than half of the country’s 95 million people increasingly turning to online shopping.

According to Internet World Stats, Vietnam is currently ranked 14th in the world in terms of number of internet users.