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Challenges of Taxation on Internet Business

Electronic commerce (e-commerce) has changed the way business is conducted in the twenty-first century. Since the advent of e-commerce distances and national borders have become much less significant and the concept of a global marketplace has become much more of a reality.

Sales can now be made via the Internet thereby increasing the availability of new ranges of products and services worldwide in the so-called global market. Commercial transactions no longer require traditional intermediaries. Government regulatory and tax authorities are therefore finding it much more difficult to track the flow of intangible products and services. Although taxation is less of an issue in the internet business practitioners, it is an issue of concern for many governments.

The Internet as a market place without boundaries, presents complicated administrative challenges for traditional means of levying taxation. There are however fears that some jurisdictions may target on-line transactions with new forms of taxation thus increasing the costs of purchasing online.

Some international e-commerce transactions may touch numerous national and international taxing jurisdictions and so increase the odds that consumers will be overwhelmed by multiple taxes. The identification of parties involved in the transactions, the applicable jurisdiction of tax liabilities, the risk of double taxation location of server, location of the bank from which funds for purchase are withdrawn and enforcement of tax laws have prompted the attention of legislators and analysts around the world. Difficulties that face legislators around the world are, for example, how to identify the parties to e-commerce transactions and how to determine which jurisdiction(s) ought to tax such transactions.

In determining which jurisdiction ought to tax ecommerce transactions, relevant considerations include whether the appropriate jurisdiction should be where particular servers are located or where the bank from which funds are paid in the transaction is located and the avoidance of inappropriate double taxation.

Taxing authorities are concerned that e-commerce will erode their tax base and some urge quick action to impose taxes on e-commerce. The taxation of e-commerce remains a thorny issue, as countries seek to ensure that traditional taxation is not avoided, while at the same time avoiding the imposition of levies that might impede the development of e-commerce. A number of countries and organizations are studying ways to resolve these issues.


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