Finance Ministry tells online hotel booking services to pay tax

Agoda, Traveloka, Booking and Expedia have to pay VAT (value added tax) and CIT (corporate income tax), which is 5 percent of total revenue, for profits from doing business in Vietnam, according to the Ministry of Finance (MOF).

MOF released the decision one month after Vntrip.vn, a Vietnamese owned firm, criticized Agoda for evading tax in Vietnam. It said the tax payment duty must be implemented by accommodation service providers on behalf of foreign contractors like the contractor withholding tax.

If clients who book hotel rooms make payment directly to the accommodation service providers in Vietnam (hotels or guesthouses), and the service providers pay commissions to foreign contractors, the service providers will have to make tax declarations and pay tax.

If clients pay money to foreign contractors, foreign contractors will transfer money to accommodation service providers, while retaining commissions. Taxation bodies will ask accommodation service providers to inform foreign contractors about tax duties and pay tax on behalf of foreign contractors.

MOF said it released legal documents with an aim to stop the loss of revenue from tax collection as Vietnam could not collect tax from foreign companies which make profits from providing services to Vietnamese via the internet.

Prior to that, in December 2016, Vntrip.vn held a meeting with the local press, saying Agoda evaded tax in Vietnam.

The representative of Vntrip.vn affirmed that unhealthy competition was occurring in Vietnam as foreign service providers don’t have to pay tax, causing a loss of trillions of dong in revenue to the state budget.

Vntrip.vn warned that Vietnam may lose VND10 trillion worth of tax by 2020, if it cannot find the way to collect tax from the company.

Vntrip sent an official document to MOF denouncing Agoda and similar service providers for evading tax. The behavior by Vntrip then surprised the public, because Booking.com, who was the strategic partner of Vntrip, and Agoda were considered ‘brothers’ as they both belonged to the US-based Priceline.

Another surprise was that before MOF released the decision officially asking Agoda to pay tax, the Vietnamese domain name of Agoda, the tourism website, unexpectedly stopped operation.

Le Dac Lam, Vntrip’s CEO, applauded MOF’s decision.

“Some people advised us to focus on doing business rather than spending time thinking about policies for foreign companies,” Lam said.

Nguyen Duc Tai, president and CEO of The Gioi Di Dong, the largest domestic technology product distribution chain, said Vntrip should focus on its own business instead of suing other companies, because the move won’t bring benefits.