As we enter the new Millennium we are expected to have over 200 million internet users globally. It...
As we enter the new Millennium we are expected to have over 200 million internet users globally.
It is certainly true that we are embarking on a new industrial revolution, that will impact on all aspects of day to day life. In a survey of CEO's by The Economist, 92% of them believed the web would have a material impact on their business.
Overall businesses will need to be able to be forward-thinking, expand their current horizons, achieve scalability within the operations and develop an enterprise-wide electronic commerce capability. While the internet does provide the medium for the perfect global free-trade area, we should not underestimate the potential impact of regulation upon the sector.
There is currently an interesting difference of opinion between how US corporates view the issue and how continental European businesses view regulation. While the US still accounts for the majority of not only internet users but also e-commerce revenues, the rest of the world is catching up. Europe's share of web-based commerce, for example, will rise from 11% in 1998 to 33% of global e-commerce by 2003 (IDC).
The US Government has supported self-regulation within the sector but, in a recent Anderson Consulting survey, 60% of the European respondents believe that a lack of regulatory framework was actually a barrier to the development of e-commerce. The many areas of regulation involve the taxation issue, copyright protection and also legal obligations. It is worth looking at both the US case and the European viewpoint, when addressing how taxation on the internet will affect the development of e-commerce.
The issue of sales tax has been around for a long time in the US, notably because of the local state tax laws whereby each US state can set its own level of taxation and which products/services are included.
In states such as Montana, Oregon and Alaska, for example, there is no state sales tax and this has impacted on the US mail order industry. As many of the companies do not have a physical presence in the state in which a customer lives, they are not required to collect the local sales tax.
The rapid development of e-commerce has taken this aspect to another level. Global e-commerce spending is forecast to rise from $50 billion in 1998 to $111 billion in the current year and over $1.3 trillion by the year 2003 (source IDC).
This presents huge issues to the authorities in terms of transactions being undertaken across borders. One of the key benefits to both consumers and corporates is the ability to purchase goods and services around the globe. The internet dramatically reduces the frictional transaction costs and can also lead to large savings being made. How do the authorities not only regulate such trade, but also share in terms of the growth in the market?
Through a number of legislative moves the US is shifting to a permanent moratorium on imposing e-commerce taxation. The authorities are seeking to extend this into a permanent ban on international e-commerce tariffs.
The UN, however, has so far led the opposition to such a move. It argues that currently the internet is largely divisive in terms of the lack of funds within the developing nations to develop e-commerce.
While an average American will spend less than one month's salary on a computer, the average Bangladeshi citizen must spend eight year's worth of earnings.
As the European e-commerce market develops and begins to challenge the US dominance, there is concern as what approach will be taken by the EU. Overall, there needs to be one piece of legislation covering the European nations but in practice this could be hard to achieve.
The risk would be to have different sets of laws for each of the member states. This would present a huge burden on the administration aspect for the majority of businesses.
There are signs that certain nations seem intent on enforcing the local state laws. If this were to spread to all countries, again this would mean that e-commerce related businesses would need to have a detailed knowledge base on all the different laws across Europe.
An example of how governments can lose tax revenues has been evident in the UK bookmaking industry. The imposition of a 9% betting levy is a healthy revenue centre for the Government.
However, a number of online bookmakers have established licences in offshore tax havens such as the Channel Islands and Alderney. This structure means that a customer placing a bet escapes the imposition of betting tax.
Looking into the future, it is conceivable that such tax avoidance could become more widespread. E-commerce companies could be located in nations with an advantageous tax regime because on the internet the physical location of a company is not that important. In a study undertaken by ABN Amro, where the betting duties were combined with corporation tax, VAT and other business rates, up to 30% of the UK Government's tax revenues could come under pressure because of e-commerce.
In the US, a study undertaken by Jupiter Communications estimated that the sales tax losses could reach $2.6bn by the year 2002. To offset the negative view on taxation losses created by e-commerce, observers point to the incredible growth created by the internet and the impact that will have on the underlying levels of GDP in terms of higher personal and corporate income taxes.
Other areas cited include, the property taxes where internet businesses are expanding into bricks and mortar. Higher telephones taxes are created by the dramatic growth in telecom topic etc according to a study by the Californian Taxpayer's Association every dollar of GDP produces 9.5 cents of the tax revenue. Therefore, even if we take the most conservative growth forecasts for internet revenues, the economy benefits, and so do the governments, from the underlying t
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