Introduction
Cross-border electronic commerce is currently operating in a tax-free environment. This, combined with predictions of steep increases of e-commerce in the future has prompted Governments and tax authorities to discuss modifications to existing legislation that take account of these developments. One of their concerns is the potential loss in tax revenues resulting from e-commerce, which account for significant shares of government budgets in most countries. This is of particular concern to developing countries where import duties comprise higher shares of government revenue and a shift to other revenue sources is economically less feasible.
The erosion of the consumption tax base resulting from e-commerce has caused considerable concern among Governments. Consumption taxes usually include value-added taxes, sales taxes and turnover taxes. Traditionally, they are borne by the consumer and collected by the seller; different rules apply depending on the product or service sold, the location of consumer and seller, and the type of consumer. With e-commerce, the number of foreign on-line suppliers, who are often subject to different taxation rules, has increased considerably. Research carried out in the United States on the impact of taxation on Internet commerce and consumer on-line purchasing patterns found that consumers living in high sales tax areas are significantly more likely to buy on-line than those living in low-sales areas. Hence, differentiated Internet taxation rules among countries could have a significant impact on consumers’ purchasing behavior shifting from domestic to foreign suppliers.
This raises several problems for tax authorities. First, it leads to the gradual elimination of intermediaries such as wholesalers or local retailers, who in the past have been critical for identifying taxpayers, especially private consumers. Second, foreign suppliers may be tax-exempted, whereas local suppliers are normally required to charge value added tax (VAT) or sales taxes. Third, direct orders from foreign suppliers could substantially increase the number of low value shipments of physical goods to individual customers.
Research Questions
1. How does e-commerce economy works?
2. What are the tax implications of e-commerce?
3. What are the benefits of charging tax on e-commerce?
4. What are the negative effects of not charging tax on e-commerce?
Research Objectives
1. Ascertain how e-commerce economy works.
2. Identify the tax implications of e-commerce.
3. Determine the benefits of charging tax on e-commerce.
4. Identify the negative effects of not charging tax on e-commerce.
Research Methodology
The planned methodology is secondary research. The researcher will make use of published materials such as books, magazines and newspapers to collect data and information regarding the topic. The researcher will also make use of the internet to obtain information about the company such as its background and other related information. For the research, the researcher will mainly rely on secondary data in obtaining the information. Due to inaccessibility of the subject or the case study, other research methods are not applicable. Secondary data are data that have been collected for some other purpose. Secondary data can provide a useful source from which to answer the research question(s). Punch (1998) mentions several advantages of using existing data. Expenditure on obtaining data can be significantly reduced and data analysis can begin immediately, so saving time. Also, the quality of some data may be superior to anything the researcher could have created alone (Thomas, 2004, p. 191). On the other hand, the chosen research method also has several disadvantages. Data that have been gathered by others for their own purposes can be difficult to interpret when they are taken out of their original context. It is also much more difficult to appreciate the weak points in data that have been obtained by others. The data may be only partially relevant to the current research question (Thomas, 2004, p. 191).
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