Dauds Advisory
Enhanced Market Efficiency through E-commerce
The advent of electronic commerce has greatly enhanced the efficiency of markets. This type of commerce allows consumers to access a broader range of products from a larger number of suppliers than was previously the case. In addition, businesses can expand the reach of their operations in a highly cost-effective manner. The e-commerce market has three main segments: business-to-business (B2B) which dominates the market, business-to-consumer (B2C), and consumer-to-consumer (C2C) which covers the sale of products between individuals not treated as businesses. Exponential growth of electronic commerce has raised legal and policy issues for the world’s taxing regimes. This form of commerce exists in a number of forms and contexts, and involves a wide array of commercial activities carried out through the use of computers including on-line trading of goods and services, electronic funds transfers, on-line trading of financial instruments, electronic data exchanges between companies and electronic data exchanges within a company.
Challenges Posed by E-commerce to Taxing Regimes
Electronic commerce has opened up new avenues for the marketing of traditional goods and services directly to consumers. It has also created similar opportunities for business-to-business (B2B) transactions involving both digital and nondigital products and services.
The electronic commerce market involves a significant amount of cross-border trade, and its exponential growth has raised legal and policy issues for the world’s taxing regimes. At the last count, the global e-commerce market was valued at more than US$26 trillion, accounting for more than 30% of world GDP.
Co-operative Taxation Approaches to E-commerce
At the same time, electronic commerce has had significant implications for direct tax as well as indirect taxation in the form of consumption tax such as VAT and sales tax. E-commerce does not recognize national borders. Because of this feature, tax agencies around the world have considered that to combat tax base erosion (narrowing or disappearance of the tax base), taxation of this type of commerce should be undertaken in a co-operative manner among governments.
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