Temu and management challenges

Temu, an e-commerce platform from China, is creating a sensation in Vietnam. With incredible deals and extremely low prices, Temu has easily attracted Vietnamese consumers even though the platform has not yet been officially registered with the Ministry of Industry and Trade .

Vietnamese consumers have also been advised to exercise caution when purchasing goods from e-commerce platforms that are not registered in Vietnam in order to protect their rights. (Source: Economy and Urban Affairs)

The emergence of Temu brings benefits to consumers but also poses challenges for the market and regulatory agencies regarding taxation, protection of domestic production, and consumer rights.

When the Temu "storm" appeared

Since the end of September 2024, Temu, a cross-border e-commerce platform belonging to PDD Holdings, the group that owns the e-commerce site Pinduoduo (China), has officially entered the Vietnamese e-commerce market. With incredible deals and extremely low prices, this cross-border e-commerce platform from China is creating a sensation in Vietnam.

Temu stands out for its ultra-cheap products, ranging from household goods and fashion to tech accessories. Mr. Hoa, a customer in Hanoi, shared that he downloaded Temu after seeing many attractive advertisements on Facebook. Hoa bought several inexpensive household items such as cleaning cloths, charging cables, and children's toys for just a few tens of thousands of dong. Although the products were only "market-grade," he was still satisfied because of the low price and convenience.

Not only Mr. Hoa, but thousands of other Vietnamese consumers were also attracted by the prices of the products, along with the incredibly attractive promotional offers for new users. This is what turned Temu into a "craze" and attracted the attention of many people, especially young people.

In response to conflicting information regarding this appearance, the Ministry of Industry and Trade has instructed the Department of E-commerce and Digital Economy to require the corporation currently owning this e-commerce site to register its operations in accordance with current Vietnamese law. The agency also requested the Ministry of Information and Communications to "implement appropriate technical solutions to block" Temu if it fails to comply with this request.

Similarly, when asked by reporters on the sidelines of the 8th Session of the 15th National Assembly on this issue, Deputy Prime Minister and Minister of Finance Ho Duc Phoc directly requested the General Department of Taxation to review Temu's registration and tax declaration in accordance with Vietnamese tax laws.

In fact, the emergence of the "Temu storm" in Vietnam with its direct-to-consumer sales model in early October triggered a series of regulatory mechanisms for this business model. Even a number of new requirements have emerged, such as researching methods for monitoring and managing imported goods circulating through unregistered e-commerce platforms; monitoring, detecting, and handling warehouses and goods collection points (if any) of unregistered cross-border e-commerce platforms...

Also in October, measures were developed to control imported goods into Vietnam through e-commerce channels, as well as to assess the impact on the domestic market when foreign goods penetrate the Vietnamese market through cross-border e-commerce platforms. Standards and regulations for goods under the management of the Ministry of Industry and Trade will also be established...

Vietnamese consumers have also been advised to exercise caution when purchasing goods from e-commerce platforms that are not registered in Vietnam in order to protect their rights.

According to regulations, cross-border online retail platforms with Vietnamese domain names, displaying in Vietnamese, or having more than 100,000 transactions per year from Vietnam must register with the Ministry of Industry and Trade. However, according to information from the Department of E-commerce and Digital Economy, before Temu, there were still platforms that did not comply with this regulation, such as Shein and 1688, which operate with similar models in Vietnam.

The need for self-renewal to adapt to the global e-commerce "wave".

During the working session in the first week of this National Assembly session, the issue of Temu (a Vietnamese online marketplace) was raised from multiple perspectives, not simply focusing on the management of e-commerce platforms. National Assembly delegate Hoang Van Cuong (Hanoi delegation) warned that this poses a risk, as cheap goods on Temu could stifle domestic production, forcing local businesses and stores to close. “We certainly cannot ban these cross-border purchasing activities, because we are opening up trade; however, there must be control over the quality, origin, and provenance of goods,” delegate Hoang Van Cuong stated.

According to compiled data, e-commerce in Vietnam is growing very rapidly. In the first nine months of 2024, nationwide e-commerce revenue reached approximately $28 billion, a 36% increase compared to the same period last year.

The question is, how much of this tens of billions of USD is accounted for by Vietnamese goods? This is also a question that many countries around the world are asking as they try to figure out how to deal with Temu.

With Temu, instead of buying goods from a major brand in the market, consumers can buy those products directly from the manufacturer for that major brand, but at a much lower cost. From the beginning of October, Vietnamese consumers can access these product lines by going to app stores on their phones to download the app and purchase and pay on the Temu platform in Vietnamese. This means that Vietnamese businesses are facing immense competitive pressure, putting them in an extremely difficult position.

For example, for the same product, Vietnamese businesses importing it will have to pay taxes and label it with the country of origin, but if they sell it through cross-border e-commerce platforms like Temu or Shein, they will not. This is a major issue, requiring state management agencies to find immediate solutions.

The Temu story goes beyond price competition, raising significant questions about legal and tax management aspects. According to the Law on Tax Administration and Circular 80/2021/TT-BTC, foreign suppliers generating revenue in Vietnam must declare and pay taxes. The General Department of Taxation has implemented an electronic portal for foreign suppliers since 2022 to monitor cross-border e-commerce activities.

According to information from the General Department of Taxation on October 30th, on September 4th, 2024, Elementary Innovation Pte. Ltd, the operator of Temu in Vietnam, completed its tax registration through this portal and was assigned tax code: 9000001289. According to regulations, foreign suppliers like Temu must declare and pay taxes quarterly. Temu will submit its first tax return for revenue generated in Vietnam from Q3/2024, with a deadline of October 31st, 2024. Since Temu is not expected to generate taxable revenue until October 2024, the platform will declare its revenue in the Q4/2024 tax period and pay taxes before the deadline of January 31st, 2025.

To ensure the tax compliance of foreign suppliers like Temu, the General Department of Taxation stated that it will closely monitor revenue declarations to prevent tax evasion. However, this is not easy, especially when international platforms can exploit the "permanent establishment" regulation to avoid tax obligations. In fact, some companies such as Amazon, Meta, and Google have requested tax refunds, claiming they "do not have a permanent establishment" in Vietnam. This poses a significant challenge for the tax administration system in determining the tax obligations of foreign suppliers without a physical presence in Vietnam.

According to experts, without corrective measures, this disparity will make it difficult for domestic businesses to compete and weaken the domestic economy. However, to ensure consumer rights, tax revenue, and protect domestic production, authorities need to improve the legal framework and implement effective management measures. From stricter tax oversight to requiring foreign suppliers to strictly adhere to consumer protection standards, the emergence of Temu and other cross-border e-commerce platforms clearly poses urgent demands on Vietnamese regulators. Not only are tax oversight and protection of domestic production needed, but improving the legal framework to keep pace with the development of global e-commerce is also essential.

The General Department of Taxation also stated that there are currently about 115 foreign suppliers registered and paying taxes through the electronic portal, contributing over 18 trillion VND to the state budget. However, this is only a small fraction of e-commerce transactions in Vietnam. Many foreign suppliers have not declared and fulfilled their tax obligations, causing revenue losses for the state budget. If the proposed amendment to the Law on Tax Administration is approved, tax authorities will have more legal tools to require foreign suppliers to pay taxes even without a physical presence in Vietnam, helping to effectively manage revenue from e-commerce.

Clearly, Temu and other cross-border e-commerce platforms have opened a new chapter in the Vietnamese e-commerce landscape, offering consumers a wider range of shopping options while also posing significant challenges to the domestic market and regulatory agencies. The Temu model forces manufacturers to restructure their operations to offer more reasonable prices and higher quality, while distribution and retail channels are compelled to seek new, suitable models.

The development of cross-border e-commerce, as in the case of Temu, is inevitable in the era of globalization. Domestic businesses are being forced to change, innovate, and seek new operating models to compete in the market. Therefore, a transparent business environment and an institutional framework that promotes development will be crucial support.

Many economic experts point out that while challenges exist, they also present opportunities for significant change, not only for businesses seeking to grow larger and stronger, but also for the government's efforts in implementing institutional reforms and removing bottlenecks in the economy. Ensuring fairness in tax obligations, protecting domestic production, and safeguarding consumer rights are key factors in building a sustainable and healthy digital economy. Only then can Vietnam reap the benefits of the global e-commerce wave while maintaining stability in the domestic market and protecting the rights of domestic businesses.

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