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Taxation of electronic commerce in developing countries: A case for shifting of focus to consumption taxes

Philip A. Folarin


The internet has transformed medium of business and consumers interactions. Parties to transactions are no longer confined to goods and services within their ‘brick-and-mortal’ but rather have access to goods and services beyond their physical reach. The problem however is that laws regulating commercial interactions in developing countries are still mostly conventional in their provisions and approach being tied to physical presence of the parties. As more business transactions are carried on through the internet and less business done using the traditional means, governments of developing countries suffer from a reduced tax base. The fact remains that most developing countries are importers of digital products from developed countries. This affords developed countries the opportunity to make lots of profits from the consumption of these products while escaping tax nets. This is made possible because the emergence of the internet has made it unnecessary for them to have permanent establishment in these developing countries. The focus of this paper is the assessment of the potential impact that e-commerce can have on the tax base of developing countries. The analysis is done against the background of the existing principles on international taxation. This paper concludes that it is essential to come up with an appropriate model that will suit the peculiar circumstances of most developing countries.

Keywords: Taxation, E-commerce, Developing Countries, Consumption Taxes