Online games are an industry with high revenue and high profits, so why do game publishing companies like Garena Vietnam only pay "symbolic" taxes? Is this unusual?
In early 2023, in the Draft Law on Special Consumption Tax (amended) for consultation, the Ministry of Finance plans to include online video game services in the special consumption tax. The Ministry of Finance assesses that this industry has large revenue and high profits compared to other types of business, attracting all ages, especially young people.
This issue immediately caused a wave of protests from game publishers in Vietnam, most of whom said that no country currently imposes a special consumption tax on online games. Some game publishers also said that although the game industry is highly profitable, the profit margin is only 3% - 5% of revenue. This is considered an average profit margin, if not low.
Explaining this issue, many game publishers said that currently, releasing games in Vietnam costs a lot of money, of which copyright costs account for about 23%; tax and payment intermediary costs account for 24%, marketing costs account for 20%-30%, and app store costs account for 15%-30% depending on the size of the business. Therefore, the profit margin is only about 3%-8%.
For example, for Garena Vietnam, according to research by the Journalist & Public Opinion Newspaper, in 2022 alone, this company earned more than 6,900 billion, but paid less than 26 billion VND in corporate income tax. This is the most surprising tax amount for readers, as this number is not even equal to 2 days of revenue of Garena Vietnam.
Earning thousands of billions each year by publishing games in Vietnam, but Garena Vietnam only pays taxes less than the money earned in 2 days
With such an unbelievably "thin" profit, many opinions say that this is a difficult thing to understand about game publishing businesses, because revenue and profit are "sky and earth". Because if in fact online game publishing only has such low profits, not even a "corner" of other types of business, not to mention a series of risks, then this is not considered a big piece of cake that many businesses are still trying to "jump headfirst" into, and is even considered a new generation industry.
This has been proven by the growth of video game publishing companies such as Valve, Tencent, or Ubisoft, which has shown the potential for the development of the gaming industry, as well as the e-sports industry. These companies not only have huge revenues, but also find ways to maximize profits through products and activities related to those games.
Is high cost of goods sold the reason why the profits of game publishers like Garena Vietnam are "almost non-existent"?
The reality is that the online game industry in Vietnam is mainly publishing foreign games. Businesses have to buy game copyrights, publish them domestically with all kinds of costs, if all are deducted, "success" is said to reach a profit of 2%-5%. Most of the game publisher's revenue will be used as expenses for a series of items from: copyright, payment intermediary, marketing... so the profit will be extremely low.
An interesting fact is that many Vietnamese game publishing companies have foreign shareholders, and are holding the copyright of famous games that are being published by these companies in Vietnam. For example, Garena Vietnam, according to research by the Journalist & Public Opinion newspaper, Vietnam Electronic Entertainment and Sports Joint Stock Company (also known as Garena Vietnam) has a structure including: Mr. Mai Minh Huy owns 69.5%, foreign shareholders own 30% and Mr. Le Minh Tri owns 0.5%. The current charter capital of Garena Vietnam is 9 billion VND. The General Director and legal representative of the company is currently Mr. Vu Chi Cong (born in 1984).
Garena Vietnam's foreign shareholder is Garena Vietnam Private Limited, a subsidiary of Sea Limited Group (Singapore). Currently, Sea Limited is one of the big names in the online entertainment business industry in the world, with famous games in Vietnam such as: League of Legends, Lien Quan Mobile, Free Fire or FIFA Online...
By collecting money through the sale of in-game items, advertising, organizing events, tournaments... Garena Vietnam has brought in a huge revenue of up to thousands of billions each year. Accordingly, in recent years, Garena Vietnam's revenue has continuously increased year by year, reaching a record of more than 6,900 billion VND in 2022, equivalent to an average daily revenue of nearly 19 billion. This revenue increased by 14% compared to the previous year and was nearly 4 times higher than in 2017.
After nearly tripling in 2020 to VND143 billion, Garena Vietnam's after-tax profit fell 27% in 2021. By 2022, the game publisher's net profit increased again to VND115 billion, but this figure was still much lower than the record level in 2020. The net profit margin was only about 2%, meaning that VND100 in revenue was exchanged for VND2 in profit.
In the past, Garena Vietnam even unexpectedly reported a loss in 2014 despite a four-fold increase in revenue to VND1,200 billion over the same period. That year was also the first time the company recorded revenue of over a trillion. The high cost of capital of up to thousands of billions each year is the main reason why the game publisher's profits have been eroded over the years.
Therefore, the thin profit makes Garena Vietnam pay very little tax. In 2022, although the revenue reached more than 6,900 billion VND, this enterprise only paid less than 26 billion VND in corporate income tax, this figure is not even equal to the money collected in 2 days. In the past 5 years, the amount of corporate income tax that this game publisher has paid is less than 111 billion VND, although it collects thousands of billions every year.
Source
Comment (0)