ABSTRACT
All taxes, direct and indirect, under whatever jurisdiction, must operate within a global economy. Where e-commerce presents its challenge to the established order is in the fact that it exists in a borderless virtual world whereas conventional wisdom regulates commerce and taxation through international treaties, which rely heavily on the establishment of the location of each of the transacting parties. The most fundamental threat to the international tax system posed by e-commerce is the erosion of the worldwide tax base and in consequence the damage to economic balances, economic efficiency and competitive fairness among vendors. The base of tax means the thing, transaction or the amount on which the tax is raised. All taxes have bases, which mean the precise boundary of what is taxed as distinct from what is not taxed. Each tax will have a limited tax base, the limits being of two kinds: the general limits on the kind of tax and specific exceptions. Clearly, the wider the tax base of a tax, the more revenue it will collect. The more exceptions that are allowed, the smaller the return from the tax. This chapter will look into the causes of the revenue loss but also will look into the potential disproportionate effect on developing countries. There is limited published work that attempts to evaluate the effect e-commerce would have on developing countries. The lack of systematic data sources means that on many occasions, the evidence is potentially suggestive. However, this chapter will not make quantitative estimates of the revenue losses from e-commerce; rather it will look into what would be the effect if e-commerce is treated differently from other trade in respect of income tax or consumption tax.
