Indirect Taxation of E-Commerce: Implications for developing countries (UNCTAD)

Arguments

Unclear definition of e-commerce

Supporting facts:

• Mr. Grigoriou mentioned that the definition of e-commerce is not clear

• WCO used the same definition of e-commerce

Topics: e-commerce, OECD, WCO, International Organizations

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Report

During the discussion, Mr. Grigoriou emphasised the lack of clarity surrounding the definition of e-commerce. This ambiguity in defining e-commerce poses challenges for businesses and policymakers alike. Interestingly, the World Customs Organisation (WCO) maintains the same definition of e-commerce despite its unclear nature.

This further complicates the situation. The analysis suggests that the Organisation for Economic Cooperation and Development (OECD) should take the initiative to update the definitions or frameworks of e-commerce. This would help establish a common understanding and address the existing confusion.

However, questions were raised during the discussion regarding the efforts of the OECD in updating these definitions or frameworks. It remains to be seen whether the OECD will actively work towards addressing this issue. The sentiment surrounding the topic is neutral, indicating that there is no clear agreement or disagreement among the participants.

The lack of a definitive stance suggests that further discussions and collaborations may be required to reach a consensus on the definition of e-commerce. Overall, the analysis highlights the ongoing challenges posed by the unclear definition of e-commerce. The importance of establishing a clear definition becomes apparent when considering the impact of e-commerce on various industries and its potential for fostering innovation and infrastructure development.

Moving forward, it is essential for international organisations like the OECD to actively address this issue and work towards creating a more robust framework for e-commerce.

Arguments

Digital platforms need to play a central role in tax collection for e-commerce

Supporting facts:

• Digital platforms have a strategic position within the e-commerce supply chain and can provide reliable data for revenue authorities’ risk management.

• Assigning tax collection responsibility to digital platforms could contribute to the taxation of the informal sector.

Topics: Tax administration, E-commerce

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There’s a need for initiatives to monitor and manage non-resident vendors.

Supporting facts:

• Non-resident vendors pose challenges to taxation and can lead to tax evasion.

• Non-resident vendors should be required to register for VAT or GST and be made liable for its payment.

Topics: Cross-border transactions, Informal sector

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Tax administrations need to upgrade their IT and technology capabilities

Supporting facts:

• Effective e-commerce taxation requires data-oriented monitoring, which needs advanced IT and technology.

• Improved IT capabilities would enable tax administrations to implement systems for automatic data transfer and tax collection.

Topics: Tax administration, IT upgrade, Data management

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E-commerce definitions should be tied to automated transactions

Supporting facts:

• Many countries have implemented Electronic Transaction Acts which rely on certified signatures and exchange of information, including an acceptance of terms of trade.

• There’s a lack of trackability and proper taxation in manual transactions, such as through email or WhatsApp messages.

Topics: E-commerce, Regulation, Automation

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There is a replication of formal and informal trade in the digital world

Supporting facts:

• In real life, a shopper can choose to either be formal (registered and tax-paying) or informal (undeclared).

• This situation mirrors the dilemma with the regulation of automated transactions versus manual ones in the digital world.

Topics: E-commerce, Regulation, Digital Trade, Informal Trade

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Report

The analysis conducted highlights several key points related to tax collection for e-commerce. One of the main findings is the strategic position of digital platforms within the e-commerce supply chain and their potential to provide reliable data for revenue authorities’ risk management.

It argues that assigning tax collection responsibility to digital platforms could contribute to the taxation of the informal sector, which is a positive development. Another important aspect highlighted in the analysis is the challenges posed by non-resident vendors to taxation.

These vendors often evade taxes, leading to a loss of revenue. To address this issue, it suggests that non-resident vendors should be required to register for Value Added Tax (VAT) or Goods and Services Tax (GST) and be held liable for payment.

The implementation of simplified registrations and compliance regimes for non-resident vendors is supported as it would make it easier for them to comply with tax obligations and contribute to a fairer taxation system. The analysis also emphasises the need for tax administrations to upgrade their IT and technology capabilities.

Effective e-commerce taxation requires data-oriented monitoring, which can only be achieved through advanced IT systems. By improving their IT capabilities, tax administrations would be able to implement systems for automatic data transfer and tax collection, thereby streamlining the process and enhancing efficiency.

Furthermore, the analysis highlights the importance of regional institutions in supporting developing countries in implementing e-commerce taxation. These institutions can provide a united front for developing countries in negotiations with multinational firms and help harmonise and implement regulations effectively and consistently.

This collaboration is seen as essential for reducing inequalities and achieving sustainable development goals. In terms of defining e-commerce, the analysis suggests that it should be tied to automated transactions. Many countries have already implemented Electronic Transaction Acts that rely on certified signatures and the exchange of information, demonstrating the need for trackability and proper taxation in electronic transactions.

Social media platforms providing applications specifically designed for automated transactions are considered part of e-commerce and can enable tracking and proper taxation. Additionally, the analysis draws attention to the replication of formal and informal trade in the digital world. Just as individuals can choose to engage in formal or informal trade in real life, the same dilemma arises in regulating automated transactions versus manual ones in the digital world.

This observation underscores the need for comprehensive and fair regulation in the digital realm. Lastly, the analysis advocates for the implementation of proper mechanisms in digital transactions to promote digital trust. It argues that digital trust can be secured by using appropriate mechanisms for automated transactions, leading to safety for buyers and providing them with the ability to reconsider and cancel transactions if necessary.

Overall, the analysis provides insightful recommendations for leveraging the potential of digital platforms, addressing challenges posed by non-resident vendors, upgrading IT capabilities, strengthening regional support, defining e-commerce, regulating formal and informal trade in the digital world, and promoting digital trust.

By taking these recommendations into consideration, tax administrations can improve the taxation system for e-commerce and contribute to sustainable economic growth.

Report

The morning session on indirect taxation on e-commerce commenced with expressions of gratitude towards Antet for the opportunity, conveyed by the Deputy Permanent Representative from Singapore to the WTO and WIPO. The objective of the session was to discuss the launch of a study on indirect taxation on e-commerce and explore its implications for developing nations.

The panel consisted of experts who had contributed to the study and played key roles in the tax administrations of developing countries. The study underscored the significance of tax administrations evolving to keep pace with the rapidly changing landscape of e-commerce, and highlighted the need for international support in this regard.

The panel discussion aimed to delve into the priorities and policy recommendations for developing countries concerning indirect taxation on e-commerce. Mr. Christopher Gregorio led the presentation by sharing key findings from the study. His enthusiastic and informative delivery left a positive impression on the audience, who were able to learn many new aspects about indirect taxation.

During the panel discussion, specific speakers were asked questions that provided valuable insights into various aspects of the issue. Mr. Batio was questioned about practical and reasonable approaches for applying internationally accepted taxation norms to e-commerce and digital trade. The session also focused on how these norms can be clarified or developed, including the use of regional toolkits or collaborations with international organizations.

Mr. Migues addressed the status of technological integration of regional tax agencies in Latin America and the Caribbean, and its impact on improving tax compliance. Mr. Kwanko discussed the priorities of African countries regarding internal taxation on e-commerce, while acknowledging the potential indirect policy implications on the business environment and investment.

During the Q&A session, participants had the opportunity to ask questions to the panelists. The session concluded with a round of applause for the panelists and gratitude for the productive and enlightening discussions. Overall, the morning session on indirect taxation on e-commerce provided valuable insights into the topic.

It emphasized the need for tax administrations to adapt and stressed the significance of international support. The expertise shared by the panelists, combined with active audience engagement, contributed to a fruitful and rewarding session.

Arguments

Emeka Nwankwo emphasizes the critical role of VAT (Value Added Tax) in African countries’ revenue collection.

Supporting facts:

• VAT constitutes about 30% of total revenue across most African countries over the past 10 years.

• VAT is the highest contributor to revenue for most countries on the continent.

Topics: VAT, African countries, revenue collection

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Balancing act is required between investment, business obligations, tax collection, and ensuring equitable competition

Supporting facts:

• Different countries are at different levels of maturity in terms of policy legislation and administration

• A VAT mechanism is required that works with local operators while giving enough information for revenue authority for compliance

• There’s always a need to layer some level of compliance monitoring and enforcement

Topics: Taxation, Business Investments, Competition

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Importance of understanding environment and specific scenario of each country to develop VAT compliance

Supporting facts:

• VAT is consumption-based and wide-based

• Cross-border supplies need to be accommodated

Topics: Taxation, Policy Adaptation

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African Tax Administration Forum is assisting African countries in enhancing revenue mobilization form e-commerce and digital trade

Supporting facts:

• Published a paper on the VAT compliance regime for cross-border digital supplies

• Launched regional toolkits on VAT compliance, in cooperation with the OECD and World Bank

• Provided country-specific technical assistance to over 10 African countries, six of which have been able to make legislative changes

• Seen a doubling of revenue year on year in three countries that have been reporting their revenue from this new regime

Topics: Revenue Mobilization, E-commerce, Digital trade

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Report

Emeka Nwankwo emphasises the critical role of VAT (Value Added Tax) in revenue collection for African countries. VAT has constituted approximately 30% of total revenue across most African countries over the past decade, making it the highest contributor to revenue on the continent.

This underscores the significance of VAT in generating funds for government expenditure and development initiatives. Nwankwo argues for cooperation between the Organisation for Economic Co-operation and Development (OECD) and African countries to improve VAT implementation and compliance. He advocates for close collaboration with the OECD on toolkits and working closely with African nations on VAT implementation.

Additionally, he highlights the need for better VAT compliance, which can be achieved through implementing API (Application Programming Interface) collection and providing flexibility for businesses. By understanding the dynamics of inputs and outputs, businesses can effectively adapt to VAT requirements.

Using APIs for information collection can also enhance compliance efforts. The African Tax Administration Forum is assisting African countries in enhancing revenue mobilisation from e-commerce and digital trade. Their efforts include publishing a paper on the VAT compliance regime for cross-border digital supplies, launching regional toolkits on VAT compliance in cooperation with the OECD and World Bank, and providing country-specific technical assistance to over 10 African countries.

Legislative changes have been made in six of these countries, and three countries that have adopted the new VAT compliance regime have experienced a doubling of revenue year after year. Nwankwo argues for a coordinated approach to VAT compliance, suggesting that instead of strict harmonisation, countries should adapt VAT policies to suit their specific scenarios.

Each country has its own level of process maturity, and a one-size-fits-all strategy may not be effective. Therefore, coordination is key to developing VAT compliance strategies that are tailored to the unique circumstances of each nation. In conclusion, Emeka Nwankwo highlights the crucial role of VAT in revenue collection for African countries and advocates for cooperation with the OECD to enhance VAT implementation and compliance.

By emphasising the importance of better VAT compliance through API collection and business flexibility, Nwankwo aims to strengthen revenue collection and promote equitable competition. The African Tax Administration Forum’s efforts in revenue mobilisation from e-commerce and digital trade have shown positive results.

Nwankwo also stresses the significance of a coordinated approach and understanding each country’s specific scenario in developing VAT compliance strategies. Through these efforts, African nations can support sustainable development and economic growth.

Arguments

Indirect taxes and particularly value-added taxes are critical revenue sources for developing economies.

Supporting facts:

• Piet Wattieu is heading up the consumption taxes work at the OECD based in Paris.

• Peru is an OECD candidate for accession, and their value-added taxes contribute to over 50% of their tax revenues.

Topics: Taxation, OECD, Developing Economies

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Countries need to adjust their VAT regimes to the e-commerce challenges.

Supporting facts:

• Many VAT regimes, particularly in developing economies, were designed for traditional brick-and-mortar trade.

• Countries are adjusting and implementing measures to secure their revenues in the e-commerce space.

Topics: E-commerce, VAT, Taxation

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The measures for adjusting VAT regimes for e-commerce should not stifle innovation or create obstacles to trade and investment.

Supporting facts:

• The OECD has been working on the taxation challenges presented by e-commerce for about 25 years.

Topics: Innovation, Trade and Investment, E-commerce, Taxation

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A globally consistent response is important in addressing the issues of VAT in e-commerce

Supporting facts:

• The creation of the Global Forum on VAT in 2012 by OECD which gathers between 100 and 130 countries

• The development of a number of solutions by the forum to these challenges

Topics: taxation, e-commerce, VAT

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E-commerce presents a challenge for VAT collection

Supporting facts:

• The main challenge lies in collecting VAT from sellers who are not in the country

• Technology creates opportunities for tax collection

Topics: e-commerce, VAT, tax collection

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The implementation of VAT measures in e-commerce encounter difficulties in low income countries

Supporting facts:

• Various solutions developed by the Global Forum on VAT have been implemented by around 100 countries, including several developing economies

• Low income countries still struggle with implementing these regimes due to poor understanding and capacity limitations

Topics: e-commerce, VAT, implementation, low income countries

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Indirect taxes like VAT need to be predictable, scalable, globally consistent, and simple

Supporting facts:

• Indirect taxes are levied on a transaction-by-transaction basis

• This requires rules to be predictable and scalable both from a compliance perspective and an administration perspective

• Countries globally need to agree on a proxy for identifying market jurisdictions

Topics: Indirect taxes, Value-added taxes (VAT), e-commerce

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Technology and internet leaves traces that are foundational for tax report and collection

Supporting facts:

• Technology allows businesses outside of the market jurisdiction to register and remit the tax

• Online platforms account for the majority of e-commerce and have high levels of compliance

Topics: Digital technology, Internet, Tax collection

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Implementing globally consistent rules makes it easy for online vendors to comply

Supporting facts:

• Large platforms have not failed to comply when countries implemented globally consistent rules

• Vendors automate their compliance based on globally adopted rules

Topics: Taxation, E-commerce, Global Consistent Rules

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The definition of e-commerce is mainly critical for statistical measurement.

Supporting facts:

• The definition matters from a statistical point of view to measure e-commerce.

Topics: definition of e-commerce, statistical measurement

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Tax law should be designed to remain updated so it doesn’t have to be updated every year as technology evolves

Supporting facts:

• OECD recommends that tax law should be applicable over time.

Topics: tax law, technology evolution

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Report

Indirect taxes, particularly value-added taxes (VAT), play a vital role in generating revenue for developing economies. This is highlighted by the fact that in Peru, an OECD candidate for accession, value-added taxes contribute to over 50% of tax revenues. Piet Wattieu heads the consumption taxes work at the OECD in Paris and emphasizes the importance of adjusting VAT regimes to the challenges posed by e-commerce while also ensuring that innovation is not stifled.

In response to the growing prominence of e-commerce, countries need to adapt their VAT regimes accordingly. Many VAT regimes, especially in developing economies, were initially designed for traditional brick-and-mortar trade, and adjustments are required to secure revenues in the e-commerce space.

The OECD has been addressing these taxation challenges presented by e-commerce for approximately 25 years. It is crucial to establish a globally consistent approach to address the issues surrounding VAT in e-commerce. In 2012, the OECD created the Global Forum on VAT, which brings together around 100 to 130 countries.

This forum has developed a number of solutions to the challenges faced by VAT regimes in the context of e-commerce. One of the significant challenges encountered in e-commerce is the collection of VAT from sellers who are not located within the country.

However, technology presents opportunities for tax collection, as it allows businesses outside the market jurisdiction to register and remit taxes. Online platforms, which comprise the majority of e-commerce, demonstrate high levels of compliance. Nevertheless, rules must be created to ensure that non-resident businesses and online platforms are held liable for the taxes they owe.

Implementing VAT measures in e-commerce is not without difficulties, particularly for low-income countries. Despite the development and implementation of various solutions by the Global Forum on VAT, these measures still encounter challenges in low-income countries due to poor understanding and capacity limitations.

To support countries in implementing VAT regimes in e-commerce, the OECD has partnered with initiatives such as SEAD and ADEF. Toolkits have been created to provide assistance, considering the struggles faced by low-income countries. This partnership aims to facilitate the effective implementation of VAT measures in e-commerce.

To ensure the effectiveness of indirect taxes like VAT, they need to be predictable, scalable, globally consistent, and simple. This is essential to create a stable framework for compliance from both a regulatory and administrative perspective. Non-compliance in addressing VAT in e-commerce could lead to the growth of informal digital trade.

If the cost of compliance outweighs the benefits, platforms may opt to stop selling in certain countries, resulting in informal networks smuggling goods into the country. Regarding statistical measurement, the definition of e-commerce plays a critical role. It is important to define e-commerce accurately to enable appropriate statistical measurements of its impact.

When considering tax laws applicable to e-commerce, it is recommended that they are designed to remain updated over time. This reduces the need for constant annual updates as technology evolves. In conclusion, indirect taxes, particularly VAT, serve as significant revenue sources for developing economies.

Adjusting VAT regimes to the challenges of e-commerce and ensuring global consistency are crucial while also promoting innovation. The development of globally consistent rules, the creation of partnerships, and the adoption of technological solutions contribute to effective tax collection and compliance.

However, challenges still remain, especially in low-income countries. Therefore, continuous efforts are required to provide support, improve understanding, and build necessary capacity for the successful implementation of VAT measures in the e-commerce sector.

Arguments

SEAD has been working closely with the OECD on tax-related issues.

Supporting facts:

• SEAD has been working with the OECD in this topic for many years.

• The work being done by SEAD and OECD is fruitful.

Topics: OECD, taxation, SEAD

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Tax administrations are working hard and keeping up to date.

Supporting facts:

• Good news is that tax administrations are really working hard in this topic and are keeping up to date.

Topics: taxation, modernization

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Tax agencies are leading innovation, digitalization and technology incorporation in their societies, particularly in Latin America and the Caribbean

Supporting facts:

• SEAT has been working with member countries and with other international organizations, e.g., OECD, in networks, technical assistance, studies, international meetings, training

• Chile began implementing digital invoicing in 2003, followed by Brazil, Mexico, Argentina and majority of Latin American countries

Topics: Tax compliance, Technology, Innovation, Digitalization

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Using ISORA data, an Innovation, Digitalization, and Technology index has been developed, which shows SEAD member countries performing well above the world average and above average results for countries of comparable income level

Supporting facts:

• The index combines 30 indicators into four different dimensions to measure innovation

• First results were published two years ago for the year 2019 and the index is being updated for the after-crisis scenario and the year 2021

Topics: ISORA, SEAD, Technology, Innovation, Digitalization

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Technology can help less developed countries to greatly advance in terms of efficiency of their tax administrations

Supporting facts:

• A digital economy compliance software has been developed with the aid of NORAD. It’s an open source solution for tax administrations to tax non-resident digital e-businesses

• The software has been implemented, deployed, and tested in countries like Bolivia, Guatemala, Panama, Nigeria, or Honduras

Topics: Technology, Tax administration, Efficiency

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Adapting regulation with the help of toolkits developed with the OECD enhances tax collection and reporting

Supporting facts:

• The toolkits provide various options and challenges for adapting regulation

• Multiple forms have been developed for learning experiences

• Specific tools have been developed for countries not wanting to develop their own software

Topics: Tax regulation, OECD

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Report

The Sustainable Economic Advancement and Development (SEAD) has successfully collaborated with the Organisation for Economic Co-operation and Development (OECD) on tax-related issues, yielding fruitful results. This longstanding partnership demonstrates the importance of international cooperation in addressing tax challenges. Tax administrations worldwide are making significant efforts to modernise, diligently updating their systems and processes to adapt to the changing landscape.

This commitment to modernisation reflects tax administrators’ dedication to improving efficiency and effectiveness. In Latin America and the Caribbean, tax agencies are leading the way in innovation, digitalisation, and technology incorporation. SEAD member countries are performing above average, surpassing global averages and comparable income-level countries.

This impressive performance represents their commitment to embracing technological advancements and leveraging digital solutions to enhance tax administration. The Innovation, Digitalisation, and Technology index, developed using data from the Innovation, Technology, and Digitalisation Observatory for Latin America and the Caribbean (ISORA), provides valuable insights into SEAD member countries’ progress.

These countries consistently perform exceptionally well, demonstrating their ability to effectively leverage innovation and technology. Technology plays a crucial role in advancing the efficiency of tax administrations, particularly in less developed countries. The development of a digital economy compliance software, in collaboration with the Norwegian Agency for Development Cooperation (NORAD), demonstrates how technology can help tackle challenges faced by tax administrations in these countries.

This open-source solution enables tax administrations to effectively tax non-resident digital e-businesses and ensures compliance with tax regulations. Additionally, SEAD has collaborated with Microsoft to develop an e-invoice anomalous detector. This detector utilises machine learning and large data management to identify outliers, improving the accuracy and effectiveness of tax administration processes.

Adapting regulations is another key aspect highlighted in the summary. SEAD has developed toolkits in cooperation with the OECD to assist countries in enhancing tax collection and reporting. These toolkits offer various options and challenges for adapting regulations, providing countries with a framework for developing their own solutions.

By collaborating in this way, countries, regardless of their resources, can effectively implement tax regulations and enhance their tax systems. The summary further emphasises the customs area’s need for specific control, particularly regarding low-value imports. Drawing from the experiences of more developed regions, tax administrations can develop effective strategies to manage and regulate low-value imports successfully.

This attention to the customs area demonstrates a comprehensive approach to tax administration reform. In conclusion, the analysis underscores the importance of international cooperation and technological advancements in improving tax compliance and administration. SEAD’s collaboration with the OECD and other international organisations highlights the significance of partnerships in addressing complex tax challenges.

The commitment of tax administrations to modernisation and innovation reflects their dedication to improving efficiency and effectiveness. Through the utilisation of technology and the adaptation of regulations, tax administrations can enhance tax collection and reporting, ensuring a fair and sustainable tax system.

Arguments

The new technologies and business models bring the necessity to adapt tax mechanisms and create new ones

Supporting facts:

• The report provides a review of options and actions implemented globally to manage new tax mechanisms.

• Conversations on tax implementations are being held at various international forums such as WTO, G-70, G-7, and G-20.

Topics: e-commerce, digital trade, tax mechanisms, new business models, new technologies

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Taxing the digital economy is complex and requires more research, conversation, and collection and sharing of best practices

Supporting facts:

• Shamika Sirimanne expresses the burdening complexity of the tax policy in a digital world.

• She emphasizes the need for further conversation and research in the sector to develop best practices.

Topics: Tax policy, digital economy, research, best practices

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Shamika Sirimanne is concerned about the inability of developing countries to collect due taxes in the emerging digital world

Topics: Digital Taxation, Developing countries

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Report

The report provides a comprehensive review of the challenges and complexities associated with taxing the digital economy and digital trade. It highlights the urgent need for new tax mechanisms and frameworks to effectively adapt to the rapid advancements in technologies and evolving business models.

One key argument put forward in the report is that the emergence of new technologies and business models necessitates the adaptation and creation of new tax mechanisms. The digital economy and digital trade have introduced novel ways of conducting business, such as e-commerce platforms and digital platforms that are not domiciled in any specific country.

This has posed challenges for countries in terms of determining tax responsibilities and developing appropriate tax collection methods. The report stresses the importance of international conversations and forums in addressing these challenges. It highlights that discussions on tax implementations are taking place at various international forums, including the World Trade Organization (WTO), G-20, G-7, and G-70.

This global engagement underscores the recognition of the need to find solutions to the complex tax issues arising from the digital economy and digital trade. Furthermore, the report suggests that further research and dialogue in the sector are essential to develop best practices in taxing the digital economy.

Tax policy in a digital world is becoming increasingly complex, and there is a need for shared knowledge and experiences to find effective solutions. The burdensome complexity of tax policy in the digital world is emphasized by Shamika Sirimanne, who is mentioned in the report.

She stresses the importance of collecting and sharing best practices to navigate the challenges posed by taxing the digital economy. Additionally, the report highlights the concern regarding the ability of developing countries to collect taxes in the emerging digital world.

It raises the issue of large non-resident platforms like Amazon and their reluctance to register as VAT payers in small, least developed countries. This poses a significant challenge for developing countries and exacerbates the digital divide, as it hampers their ability to collect due taxes from these platforms.

In conclusion, the report underscores the need for new tax mechanisms and frameworks to adapt to the digital economy and digital trade. It emphasizes the importance of international collaboration, research, and the sharing of best practices to effectively address the challenges faced in taxing the digital economy.

Moreover, it raises concerns about the difficulties faced by developing countries in collecting taxes in the emerging digital world, particularly from non-resident platforms. These insights shed light on the complexities and dynamics of taxation in the digital age and highlight the importance of finding equitable and effective solutions.