taxation of e commerce as per Pakistan laws

taxation-of-e-commerce

1. 11
Taxation of Taxation of ee-commerce-commerce
ByBy
Dr. Ikramul HaqDr. Ikramul Haq

2. 22
New taxes or no taxes?New taxes or no taxes?
The rapid development of The rapid development of
e-commerce/m-commerce e-commerce/m-commerce
and the concomitant tax and the concomitant tax
problems has led to the problems has led to the
perplexing question: new perplexing question: new
taxes or no taxes?taxes or no taxes?

3. 33
Global tax approachesGlobal tax approaches

USA, as the home country of the majority USA, as the home country of the majority
of leading companies in e-commerce, of leading companies in e-commerce,
would obviously argue for freedom from would obviously argue for freedom from
taxes and at least a moratorium on taxes and at least a moratorium on
existing taxation related to e-commerce.existing taxation related to e-commerce.

Many countries may argue for short-term Many countries may argue for short-term
solutions in order to preserve or increase solutions in order to preserve or increase
their revenue.their revenue.

Developments are taking place so rapidly Developments are taking place so rapidly
that it is difficult to predict who will be the that it is difficult to predict who will be the
winner or the loser in the long run. winner or the loser in the long run.

4. 44
Amicable solutionAmicable solution

We know that most of the states will not We know that most of the states will not
support complete freedom from taxes on support complete freedom from taxes on
e-commerce.e-commerce.

New taxes in the form of bit taxes and New taxes in the form of bit taxes and
taxes on cross-boarder transactions will taxes on cross-boarder transactions will
not be accepted by the business not be accepted by the business
community. Leading governments also do community. Leading governments also do
not advocate such taxation. not advocate such taxation.

Neutrality between taxation of e-Neutrality between taxation of e-
commerce and brick-and-mortar business commerce and brick-and-mortar business
is to be re-emphasized.is to be re-emphasized.

5. 55
Vital questionsVital questions

Has e-commerce turned the Has e-commerce turned the
concept of PE upside down?concept of PE upside down?

Have concepts like “source state” Have concepts like “source state”
and “residence” become old and “residence” become old
fashioned?fashioned?

Have generally accepted Have generally accepted
principles in international taxes principles in international taxes
disappeared?disappeared?

6. 66
Dynamic effectsDynamic effects

E-trade transcends physical E-trade transcends physical
boundaries and this development boundaries and this development
relates to both the supply of goods relates to both the supply of goods
and the provision of services.and the provision of services.

Domestic as well as international Domestic as well as international
taxation faces this grim reality and taxation faces this grim reality and
policymakers are still searching for a policymakers are still searching for a
uniform treatment.uniform treatment.

7. 77
New dimensionsNew dimensions

Digitized information can be supplied Digitized information can be supplied
world-wide for personal as well as world-wide for personal as well as
professional use.professional use.

New products and new markets are New products and new markets are
being opened. M-commerce is being opened. M-commerce is
gaining momentum.gaining momentum.

Governments, instead of worrying Governments, instead of worrying
about lost bases, must look for about lost bases, must look for
opportunities for new revenues.opportunities for new revenues.

8. 88
Great potentialGreat potential

E-traders can generate new business E-traders can generate new business
avenues increasing the income tax base avenues increasing the income tax base
beyond expectations. The value of their beyond expectations. The value of their
supply of goods or services can be the supply of goods or services can be the
basis for the taxation of consumption.basis for the taxation of consumption.

If e-commerce/m-commerce is used for If e-commerce/m-commerce is used for
cross-border transactions, the tax base cross-border transactions, the tax base
will expand in the country where the will expand in the country where the
business takes place as well as in the business takes place as well as in the
country of consumption.country of consumption.

9. 99
International tax policyInternational tax policy

Impressive growth of software Impressive growth of software
industry in many developing countries industry in many developing countries
has opened completely new markets has opened completely new markets
for them.for them.

A real understanding of ongoing A real understanding of ongoing
technological advancements and the technological advancements and the
fact that development does not stop fact that development does not stop
tomorrow must be considered when tomorrow must be considered when
forming domestic/international tax forming domestic/international tax
policy.policy.

10. 1010
Simple & transparent lawsSimple & transparent laws

A successful tax policy for e-commerce A successful tax policy for e-commerce
must ensure that businessmen can see the must ensure that businessmen can see the
link between their business, its profits or link between their business, its profits or
turnover and the corresponding income or turnover and the corresponding income or
consumption taxes.consumption taxes.

Tax laws or regulations not understood by Tax laws or regulations not understood by
the business community or individual the business community or individual
taxpayers must be avoided.taxpayers must be avoided.

11. 1111
Taxation frameworkTaxation framework

In order to secure tax compliance, the In order to secure tax compliance, the
parties and contents of e-commerce parties and contents of e-commerce
transactions must be identified. Tax transactions must be identified. Tax
authorities have stressed in numerous authorities have stressed in numerous
papers and conferences that anonymity is papers and conferences that anonymity is
the most crucial issue. the most crucial issue.

A general legal structure for e-commerce A general legal structure for e-commerce
may provide invaluable information in this may provide invaluable information in this
respect e.g. Directive 2000/31/EC on respect e.g. Directive 2000/31/EC on
certain legal aspects of information society certain legal aspects of information society
services, in particular e-commerce, in the services, in particular e-commerce, in the
Internet Market.Internet Market.

12. 1212
M-commerceM-commerce
M-commerce is a healthy reminder M-commerce is a healthy reminder
that the technological advances and that the technological advances and
business developments are a never business developments are a never
ending and dynamic processes. This ending and dynamic processes. This
aspect must be kept in mind while aspect must be kept in mind while
formulating new laws and formulating new laws and
regulations. Also, the choice between regulations. Also, the choice between
legislation and self-regulation will legislation and self-regulation will
always be influenced in favour of the always be influenced in favour of the
latter, as being more adaptable to latter, as being more adaptable to
changes.changes.

13. 1313
Tax compliance difficultiesTax compliance difficulties

Consumption and income taxation share Consumption and income taxation share
the same problem in respect of cross-the same problem in respect of cross-
border e-commerce: the supposed border e-commerce: the supposed
difficulties in securing tax compliance.difficulties in securing tax compliance.

Anonymity is a genuine problem in relation Anonymity is a genuine problem in relation
to international e-commerce.to international e-commerce.

Digital supplies directly from a trader in Digital supplies directly from a trader in
one country to a consumer in another one country to a consumer in another
country are not recorded.country are not recorded.

14. 1414
Tax compliance and collectionTax compliance and collection

If the consumers of e-commerce are not If the consumers of e-commerce are not
charged consumption taxes, the result charged consumption taxes, the result
would be lost revenue. would be lost revenue.

It should normally be easy to determine to It should normally be easy to determine to
which jurisdiction belongs the right to tax which jurisdiction belongs the right to tax
consumption.consumption.

The real problems are related to the The real problems are related to the
securing of tax compliance and tax securing of tax compliance and tax
collection. collection.

15. 1515
Consumption Tax ConventionsConsumption Tax Conventions

The first and the foremost important The first and the foremost important
argument for Consumption Tax argument for Consumption Tax
Conventions is related to securing Conventions is related to securing
tax compliance and tax collection.tax compliance and tax collection.

Increased international cooperation Increased international cooperation
and coordination in respect of and coordination in respect of
consumption tax is required.consumption tax is required.

Jurisdictional matters also need to be Jurisdictional matters also need to be
settled.settled.

16. 1616
SolutionsSolutions

A better exchange of information and A better exchange of information and
assistance between tax authorities is the assistance between tax authorities is the
need of the hour.need of the hour.

A regime for multilateral cooperation in A regime for multilateral cooperation in
tax matters re cross-border e-commerce tax matters re cross-border e-commerce
assistance was established by the joint assistance was established by the joint
OECD and Council of Europe. SAARC OECD and Council of Europe. SAARC
members are also working for Multilateral members are also working for Multilateral
Convention on Tax Matters.Convention on Tax Matters.

17. 1717
Solutions (continued)Solutions (continued)
There is growing realisation There is growing realisation
throughout the world that the tax throughout the world that the tax
authorities will have to closely work authorities will have to closely work
together in order to coordinate their together in order to coordinate their
policies and develop joint policies and develop joint
approaches. This relates to problems approaches. This relates to problems
such as double taxation, tax such as double taxation, tax
avoidance and evasion, harmful tax avoidance and evasion, harmful tax
competition and e-commerce.competition and e-commerce.

18. 1818
Solutions (continued)Solutions (continued)

No doubt it is complicated and difficult to No doubt it is complicated and difficult to
secure compliance related to the taxation secure compliance related to the taxation
of income and consumption in connection of income and consumption in connection
with cross-border e-commerce/m-with cross-border e-commerce/m-
commerce.commerce.

Nevertheless, it is possible to reach some Nevertheless, it is possible to reach some
satisfactory solutions through international satisfactory solutions through international
assistance, coordination and cooperation—assistance, coordination and cooperation—
see details in see details in Electronic Commerce: Electronic Commerce:
Taxation Framework Conditions Taxation Framework Conditions (OECD (OECD
1998), para 11.1998), para 11.