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Electronic Commerce: Challenging the Income Tax Base?

03 November 2005   (0 Comments)
Posted by: TaxFind ™
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Electronic Commerce: Challenging the Income Tax Base?


Increasing population growth and political and economic instabilities often force governments to levy high taxes to meet the costs of providing new and improved infrastructures.This frequently results in increased tax burdens which, in turn, lead to the exploitation of means to avoid taxes.

Taxpayers often try to avoid a country’s jurisdiction to tax by diverting income to low-tax jurisdictions (tax havens) where it will be subject to no or minimum taxation.This may be achieved by exploiting the differences between tax rates, legal concepts, standards of administration, reporting and enforcement, governments’ attitudes towards the liberty and privacy of taxpayers, and the confidentiality of business and financial transactions.

This trend is normally referred to as‘ off shore tax avoidance’ and is of major concern to tax authorities since it results in the depletion of the tax base of the country from which investments are diverted. Several factors have encouraged offshore tax avoidance.The seinclude the current trend towards a global economy that has broken down economic barriers between countries and has encouraged international trade, riding on a wave of telecommunication development that allows businesses to reach world markets easily and cheaply. Important to the present discussion is the development of what has become known as electronic commerce (‘e-commerce’).E-Commerce is a term used to describe the wide array of commercial activities carried out by electronic means that enable trade without the confines of geographical boundaries.

Technology enables the transmission of voice, data, images and video information to take place in cyberspace (sometimes called the ‘information highway’) by making use of the Internet.

This has resulted in a brand-new route for the exchange of goods and services and the accessing of offshore facilities that has not yet fully been examined or regulated.

E-Commerce may thus change the distribution of taxable activities and may consequently alter the balance of taxing authority.

It is feared that E-commerce will lead to the erosion of the tax base due to the ease with which the jurisdictional requirements may be manipulated.The objective of this paper is to determine whether e-commerce provides opportunities for offshore tax avoidance by challenging South Africa’s jurisdiction to tax income and also, in conclusion, to consider the enforcement challenges presented by trade conducted over the Internet.

Source: By Annet Wanyana Oguttu and Beatrix Van Der Merwe  (University of South Africa)

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