The Vietnam Digital Communications Association (VDCA) has just sent a document with comments on the Draft Law on Value Added Tax (VAT) to the National Assembly’s Finance and Budget Committee and the Ministry of Finance.
According to VDCA, the draft Law on VAT (amended) for digital content services is an important step in perfecting the legal framework to meet the requirements of digital economic development and international integration. However, through the review process, some contents in the draft have points that need to be considered and adjusted because they may adversely affect businesses operating in the fields of digital content production and film production, especially the international competitiveness and attractiveness of the Vietnamese market for investors.
Specifically, at point a, clause 1, article 9 of the draft Law on VAT (amended) proposes to apply a tax rate of 10% to products and services on digital platforms regardless of whether they are exported or consumed domestically. With this new draft, exported digital content services will no longer enjoy the current 0% tax rate.
Because tax authorities have difficulty distinguishing between revenue from exported services and domestic consumption, causing inadequacies in tax management. However, according to VDCA, applying a 10% tax rate to all exported services will lead to negative impacts on businesses operating in digital content services, especially the international competitiveness and attractiveness of the Vietnamese market to investors.
Explaining further, Mr. Nguyen Minh Hong – Chairman of VDCA said: Having to pay a 10% tax rate when exporting cross-border digital platform services can reduce the competitiveness of Vietnamese suppliers compared to other countries, which often apply a 0% tax rate for exported services, along with input tax refunds, helping businesses reduce costs.
In addition, the principle of VAT is an indirect tax, in which the tax payer must be the final consumer. However, for digital products, the consumer here is the viewer (not paying), so the business does not collect VAT. The imposition of tax on the above products invisibly directly affects the business’s revenue. This creates a huge financial burden for businesses because they do not collect tax from consumers (foreigners viewing content on cross-border platforms) but still have to bear and pay VAT to the state.
For example, a business has revenue from a digital platform (shared by digital platforms) of 100 USD. If the regulations are applied, the business must immediately pay a tax of 9.09 USD (VAT), VDCA pointed out that in fact, the above revenue is shared by the digital platform with the business and Vietnamese businesses do not collect it from consumers.
The Chairman of VDCA also added that VAT is currently not consistent with the destination principle. With the destination principle, where consumption is taxed, the 0% tax rate is intended to give the right to levy VAT to the country consuming the service. This is an international practice that all countries follow. The imposition of a 10% tax causes our services to be double-taxed (taxed in Vietnam at the import stage and taxed in the country consuming the service).
In addition, services provided on digital platforms are actually subject to double taxation. According to the analysis of VDCA leaders, for content creators who do not reside in the US, they have had 24-30% income tax withheld for views from the US before receiving payment. When the income is transferred to Vietnam, these individuals and businesses continue to have to pay an additional 7-30% tax (including VAT and corporate or personal income tax).
Finally, the imposition of a 10% tax rate may reduce the motivation to develop the cultural industry. Currently, the Government has issued a policy to promote Vietnam’s cultural industry, however, in reality, Vietnam has not yet formed a cultural industry as targeted, because investing in cultural products is risky, while in reality very few cultural products generate profits. Imposing too high a tax rate on cultural products is a major barrier, reducing the motivation of businesses to participate in developing cultural products as well as creating new products.
Therefore, VDCA proposes that the Ministry of Finance consider the regulation: Cases not subject to the 0% tax rate include: Digital information content products in the entertainment group, electronic games, digital movies, digital photos, digital music, digital advertising provided on digital platforms where the business establishment cannot provide records and documents proving consumption outside Vietnam or in duty-free zones as prescribed by the Government.
Proposal to maintain 5% tax rate for film production
Also according to VDCA, Clause 2, Clause 3, Article 9 of the draft Law on VAT proposes to increase the tax rate from 5% to 10% for cultural activities, exhibitions, physical training, sports; performing arts and film production. This causes negative impacts such as affecting the cost and accessibility of people. Increasing the tax rate will increase the price of services, thereby directly affecting the accessibility of people, especially cultural and entertainment services. These products often serve the public, have public significance, increasing the tax can create barriers to access.
At the same time, with the orientation of developing cultural, sports and artistic industries to become the driving force for socio-economic development, increasing the tax rate to 10% at this time will create great difficulties for businesses that are still in the development stage.
Therefore, VDCA leaders proposed to maintain the 5% tax rate for cultural activities, exhibitions, physical education and sports; art performances; film production to ensure sustainable development and public access to these public service products.