Draft Tax Management For E-Commerce: New Points For Household Businesses And Individuals

Current Situation And Scale Of Vietnam’s E-Commerce Market

According to the Ministry of Finance, Vietnam’s e-commerce market has grown significantly in recent years, from USD 16.4 billion in 2022 to USD 20.5 billion in 2023, and is projected to reach USD 25 billion (approximately VND 630 trillion) in 2024. This growth has attracted a large number of household businesses and individuals to online commerce. However, managing and collecting taxes from these entities remains a challenge.

Current Tax Collection From Online Businesses

In 2024, the total tax revenue collected from online household businesses and individuals was VND 2.5 trillion. However, the Ministry of Finance believes this figure is still small compared to the market’s potential and actual scale.

Key Updates In The Draft Tax Management Decree

The Ministry of Finance is drafting a decree to improve tax collection efficiency for businesses operating on e-commerce platforms and digital economic models. The main objective is to create a transparent and fair business environment between e-commerce and traditional businesses while ensuring that individuals and household businesses fulfill their tax obligations.

Applicable Entities:

• Individuals and household businesses, both domestic and foreign, conducting business on e-commerce platforms.
• E-commerce platform operators and digital platforms with payment functions.
• E-commerce platforms without payment functions.
• Tax authorities and other relevant organizations or individuals.

Tax Withholding and Submission Mechanism

E-commerce platform operators will be responsible for withholding and submitting value-added tax (VAT) and personal income tax (PIT) on behalf of household businesses and individual sellers. This withholding will be done before disbursing payments from buyers on the platform.

Tax Rate Determination

VAT and PIT will be calculated as a percentage of transaction revenue:

• Goods: VAT 1%, PIT 0.5% (for resident individuals) or 1% (for non-resident individuals).
• Services: VAT 5%, PIT 2% (for resident individuals) or 5% (for non-resident individuals).
• Transportation and services related to goods: VAT 3%, PIT 1.5% (for resident individuals) or 2% (for non-resident individuals).
• If the transaction type (goods or services) is unclear, the highest tax rate will apply.

Tax Filing and Payment Guidelines:

• E-commerce platform operators will declare taxes monthly and submit withheld tax amounts according to regulations.
• Domestic organizations will use a 10-digit tax identification number for tax filing and payment.
• Foreign organizations will be assigned a tax identification number to fulfill tax obligations in Vietnam.

The new decree will not only help tax authorities closely monitor online transactions but also simplify administrative procedures, making tax compliance easier for household businesses and reducing tax evasion.

Impact Of The Draft Decree

Positive Impacts:

• Enhanced Tax Revenue Collection: The implementation of tax withholding is expected to minimize tax losses and ensure stable revenue for the state budget.
• Fair and Transparent Business Environment: The new regulations will ensure that individuals and household businesses on e-commerce platforms fulfill their tax obligations like other business entities, fostering a level playing field between traditional and online businesses.
• Reduced Administrative Burden: With tax being withheld and submitted by e-commerce platform operators, over 300,000 individual and household businesses will experience a reduced workload in tax filing and compliance.

Challenges:

• For E-commerce Platforms: Online marketplaces will need to invest in technology and processes to implement tax withholding, which may increase operational costs and require close coordination with tax authorities.
• For Household Businesses and Individuals: Some businesses may struggle to adapt to the new tax withholding system, particularly those unfamiliar with transparent financial management. The inability to opt for a lump-sum tax method may create difficulties for small-scale businesses or new entrepreneurs who do not use business support software and face challenges in tax filing.

Conclusion

The draft decree on tax management for e-commerce businesses is a significant step toward modernizing and increasing transparency in Vietnam’s tax system. The tax withholding mechanism will not only improve tax revenue collection but also create a fair business environment between traditional and online commerce. However, to ensure feasibility and effectiveness, policymakers must carefully consider the unique characteristics of small-scale household businesses and provide clear guidance and support to help them comply. Additionally, requiring e-commerce platforms to implement tax withholding will necessitate investments in technology and management processes, making a well-planned implementation roadmap and technical support from authorities essential.