A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management

Research Studies Project Report (M.B.A.) - Asian Institute of Technology, 2001

This study analyses the impact of e-commerce on the existing indirect taxation systems and international indirect taxation issues arising from e-commerce, as well as draw implications for taxation policy in e-commerce from developing countries' perspective. E-commerce has profound impact on the current taxation system, specifically creating tax loophole, eroding tax base from destination base to origin base due to the characteristics of the Internet such as ambiguity of identification, global, borderless and virtual market place. This results in the potential for tax revenue loss as well as distortion of competition between local operators and nonlocal operators, giving more disadvantages to local operators. These impacts require the existing tax system and legal framework to be adapted toward e-commerce centered tax system. Basic international indirect taxation issues arising from e-commerce include whether new tax is needed or existing tax can be adapted, how to deal with tax jurisdiction issues between the place of supply and the place of consumption, classification issues on virtual goods between goods and services. And it also include how to collect tax without imposing new burdens, how to treat digitised goods for customs duties since they lose physical identity, and how to cope with tax compliance and service. In order to identify how these issues are tackled, this study analyses the initiatives, approaches and strategies which major national governments and international organizations have made to date. Based on comparative analysis from selected countries and international organizations on the above issues, some implications and recommendations from developing countries' perspective will be provided. Finally, this study emphasizes that developing countries should ensure that tax rules do not stifle the development of e-commerce, at the same time, that cross border ecommerce should not lead to tax revenue loss and should not distort fair competition. This policy goal should remain central. International taxation issues on cross border ecommerce have intell'elated with multiple countries so that in order to avoid multiple taxation and to collect taxes effectively with minimizing burdens, international cooperation and consensus as well as world tax harmonization is definitely required.