E-Commerce and Taxation
This is an essay which examines the claims that electronic commerce has made it possible for many nations to lose revenue in the form of uncollected taxes. The paper starts by examining the significance of electronic commerce and the role it plays on to the modern business. It is noted that most of the modern business have a good part of their activities carried out through electronic commerce.
The role of globalization is noted with respect to the increasing the popularity of the electronic commerce. The paths through which taxes are evaded are examined. It is noted with a lot of concern that a good proportion of funds is lost through the outsourcing of jobs to foreign countries. The loss of funds comes about as a result of the tax revenue bodies being unable to properly track the flow of payments, sell and purchase of services through the internet. This is especially the case where trading of services are involved. Contrary to many views this takes place in the developing nations where by many outsourcing business are thriving but which are not officially registered with their respective governments.
Electronic commerce and the Issue of TaxElectronic commerce can be defined has the business activity which is carried out through the internet. These business activities wholly depend on the transfer of information by the use of the internet. The regulation of such business as such becomes hard to regulate because their monitoring is cannot be carried out easily. The electronic businesses are becoming quite popular and involve a wide range of businesses. Electronic commerce has made it possible for the exchange of trading commodities to be possible without any barrier in terms of the distance or time factor (Chaffey, 2004; Mark, Roy, 2002).
Electronic commerce engulf a far and wide space of trading and covers a wide gap of trading from the, “consumer based retail sites, through auction or music sites, to business exchanges trading goods and services between corporations; It is currently one of the most important aspects of the Internet to emerge” (Shelton 1). Electronic commerce has made it possible for business activities to be carried out in a very convenient manner and thus making quite popular among many people. The amount of money that is involved in the electronic commerce activities is hard to estimate but generally it is agreed that electronic commerce carries a lot of funds has a lot of weight. Globalization has made it possible for electronic commerce to grow quite quickly especially because of outsourcing jobs. Most of the business firms in the developed countries carry out their businesses by outsourcing some of the technical tasks to foreign countries. Outsourcing is frequently carried out by many American firms because of the cheap services which are provided by the firms to which tasks are outsourced to.
Electronic commerce has become a very appropriate way of doing business and as formed a very significant part of the business world which is deeply integrating well and making it the core of most of the business carried out by all the modern business firms (Anderson, Sweeney and Williams, 1996; Arrington, 2006).Business to Business or B2B refers to electronic commerce between businesses rather than between a business and a consumer. B2B businesses often deal with hundreds or even thousands of other businesses, either as customers or suppliers. Carrying out these transactions electronically provides vast competitive advantages over traditional methods. When implemented properly, ecommerce is often faster, cheaper and more convenient than the traditional methods of bartering goods and services.
(Shelton 1).From the above review it is very true to claim that the electronic commerce is quite huge and commands huge amount of money. If the revenue authorities do not take the necessary precautions lot of money will be lost inform of taxes lost.According to Fox (2002), the continued increasing in the remote sales by the online shops have contributed largely to the depraving the government of tax collections. He argues that:Revenue losses from e-commerce generally arise because e-commerce enables a significant increase in remote sales, thereby causing a shift from collecting sales taxes at the point of sale to collecting use taxes for goods used, consumed, or stored in the state. Compliance rates are much higher for sales taxes than for use taxes, and use tax compliance is expected to fall further as a result of e-commerce.
(Fox par. 1)It is strongly argued that revenue loss is brought about by tax evasion (1).It is argued that the tax bases have been continually reducing mainly due to remote sales which have been reported to include the telephone and catalog sales and electronic sales. Cross state shopping are also reported to be in this group. It has been noted that there has been a shift of consumption from that of goods to that of services. Unlike the goods, services are less exposed and subjected to less taxing thus implying that less revenue in form of tax will be collected.
It is also argued that the continued exemptions which are being legislated are continuously reducing the tax revenues for governments (Bruce & Fox, 200; Bruce & Fox, 2004; Jurs, 1998).From statics, it has been shown that there have steady reductions in the bases state taxes right from 2001. These estimations for the amount of losses are made by making an estimation of the reduction in the sales tax base that is directly related to the electronic commerce. The lost tax base is then multiplied with the state specific sales tax rates. It is reported that the total revenue loss which is brought about by electronic commerce is equivalent to the differences between the internet sales and the taxes collected. It is argued that the new losses from electronic commerce are those which are brought about due to loss of funds which would have been gained in the event that electronic commerce was absent: loss from e-commerce occurs only to the extent that taxes on the transactions would have been collected without e-commerce (Fox 2).
This implies that an electronic commerce which substituted the transaction which would have taken place locally represents a loss of revenue. It is estimated that the loss that is likely to occur from electronic commerce is likely to range from $ 46.4 million to $ 3.8 billion for the year of 2011. It is claimed that the electronic commerce tax losses are highly associated with the populations implying that very high populations are an indication for the likelihood of huge losses (Kemp, 2000; Maguire, & Steve, 2005; McClure, 2000).With the huge potential and purchasing that online purchasing has been shown to wield, there are many state in the U.
S. which do not tax online purchases. There are some businesses which are caries online which might be extremely hard to tax because of their nature. Bidgali (2004) claims that, “63 percent of business to consumer online sales are nontaxable (for instance airline tickets, gambling, and interactive games); the remaining 37 percent of business to consumer sales, sales was paid on 4 percent (4 percent of the 100 percent of business to consumer sales), and 20 percent was a substitute for other remote sales for which no tax was collected, leaving 13 percent of total business-consumer sales untaxed” (416). Though it has been evident that the losses accruing from electronic commerce are continually increasing it has been a challenge to come up with a way of taping into them in order to raise more revenue.
According to Bidgoli (2004), some of these challenges come as a result of the constitutional restrictions: “many states and face restrictions in changing (such as constitutional prohibitions against some types of taxes or the need for a majority vote of taxpayers to raise a tax) (p. 416).”Conclusion and recommendationsThe internet has a very huge potential for generating income. This potential ought to be used by the authorities to get revenue. Globalization and increase in technology has made possible for the electronic commerce to spread out quite fast. It has been possible for the goods and services to be easily accessed without the geographical barriers.
This is more pronounced for the cases of the service provisions. Outsourcing of services has become a very common practice especially among the firms in the developed countries. The facts that the electronic sales replace local sales which would made a contribution to the tax collection constitutes tax losses. The state and local policy makers need to come up with a method of ending the tax free on line purchases. Current tax systems should be altered in order to ensure that revenue from electronic commerce is not lost.
Some of the suggestions through which tax loss can be reduced from electronic commerce is by coming up with ways through the remote sales can be taxed through electronically. The funds which can be obtained from such areas can be used to improve the social facilities and raise the standards of living for the general welfare of the society.