Huge advertising revenues

According to statisitics by AC Nielsen and TNS, Google holds around 95 per cent of online searches, and is the gateway for 70 per cent of websites in Vietnam, showing that its Google AdWords advertisement operation is thriving.

An undisclosed source said that somewhere around 60 per cent of online advertisements in Vietnam are delivered by foreign companies.

This same source added that Google earned $40 million from its advertising services in 2011, just from this country.

At the same time, Facebook and You Tube are also intensifying their advertising campaigns throughout the region. Even though there are no official figures from these companies, it is estimated that their ad revenues are extremely high.

Nguyen Hoa Hong Thanh, director of Emerald Company, one of Google's nine official agents in Vietnam, said that in order to become an official Google agent, they were required to be making profits of at least $10,000 per quarter. Only official agents are allowed to sign contracts with Google, a necessity for tax payment.

According to Thanh, Google's nine official agents in Vietnam account for around 50 per cent of online advert revenues in the country.

Lax management

Even though these sites reap great profits from Vietnam, they manage to evade paying taxes by using international credit card systems. This makes it difficult for authorities to levy taxes domestically.

Vo Do Thang, director of the Athena Network Security Centre, said, "International networks intentionally avoid establishing offices in Vietnam to avoid legal responsibility in the country."

Operations in Vietnam are maintained by separate representatives, based here, who are responsible for maintaining information exchange and communications with the headquarters outside the country. Thang added that unofficial agents also play a role by conducting transactions through credit card systems, which are difficult for Vietnamese authorities to trace.

These networks have also been seeking other ways of transferring funds, which would allow them to avoid paying taxes. For example, Facebook has begun to use as a means of payment.

Facebook itself claims that these new means of money transactions can open up a new era in the market by making it easier for users to sell ad space.

Le Thi Thu Huong, deputy director of HCM City Tax Department, admitted, "Although we have just recently become aware that these companies are making a lot of money in Vietnam, we are having difficulties in terms of taxing these earnings because they do not have branches within the country."

"The levying of taxes has, so far, been based on companies that register in Vietnam and declare their taxes here, and wSTC books are subject to inspection. We still don't have a system in place that is capable to deal with internet-based enterprises operating here," Huong shared.

The fact that foreign social networking websites make big money in Vietnam has put local digital content enterprises in great difficulties.

Nguyen Hoang Tuan Anh, External Affairs director of the game-operator VNG, said that, while local firms have to pay taxes and are overseen for their advert content, foreign social networking websites and search engines operating in Vietnam are not. This has fostered an unequal playing field, which puts domestic sites at a great disadvantage."

Solutions needed

Huong added that tax agencies are scrutinising the business practices of the large social networking sites.

The preliminary results of their inspection showed that Yahoo's tax payment in Vietnam has increasing marginally in recent years, reaching over VND4.8 billion ($228,180) in 2011, compared to VND2.7 billion ($128,351) in 2010, while, in 2010 they payed just VND690 million ($32,800) in 2009, she noted.

The HCM City Tax Department will soon inspect the tax declarations and payment by Google's nine official agents in Vietnam, she added.

In order to heighten tax collection from foreign social networking websites, Thang, from the Athena Centre, proposed that Vietnam should follow China's example in restraining the bandwidth of foreign social websites that do not declare taxes in the country.

Vietnam Investment Review - February 10, 2012