ITU Regional Seminar on E-commerceBucharest, Romania14-17 May 2002

Fiscal Implications of Electronic Commerce

Dr. Susanne Teltscher

United Nations Conference on Trade and Development

www.unctad.org/ecommerce

susan.teltscher@unctad.org

Presentation Outline

Government revenue sources Taxation and e-commerce Multilateral trade rules (WTO

moratorium) Classification of digitized products Tariff revenues from digitized products Other fiscal implications Conclusions

Government revenue shares

020406080

100

All Countries DevelopedCountries

DevelopingCountries

%

Tax revenue as % of total revenue

Import duties as % of total revenue

Goods/Services taxes as % of tax revenue

Import duties as % of tax revenue

Cybertaxation

Increase in cross-border trade Digitization of information Tax administration issues Two main areas:

Direct taxes (income tax) Indirect taxes

(consumption/VAT/sales tax)

Income tax

Permanent establishment in cyber space? Web site Web server Abolish concept?

Characterization: business profits or royalties?

Consumption tax

Tax jurisdiction: OECD - Ottawa framework conditions (place of consumption)

EU: new rules for B2C ? (services are tax exempted)

Identification: who verifies customer’s location?

Multilateral trade rules

WTO:

Moratorium on customs duties on electronic transmissions since 1998

E-commerce work programme: need to define electronic “products” - as goods or services (different rules apply)

Customs moratorium on electronic transmissions

Ministers“also declare that Members will continue their current practice of not imposing customs duties on electronic transmissions”.

(Geneva Ministerial Declaration, 1998)

Classification of electronic transmissions Traditional goods or services: easy Problem: digitized products

books, music, software, film, video games

Goods or services? Implications: different rules apply

GATT (goods) GATS (services)

Classification of digitized products

Classification as goods (GATT):

MFN National treatment No quotas Customs duties

Classification of digitized products

Classification as services (GATS):

Commitments in national schedules only

Quantitative restrictions possible Tariff-free - customs duties on

services? Wider scope (modes of supply)

Classification of digitized productsCurrent discussions in WTO:

GATT-level treatment Same market access and national

treatment as goods if treated as a service No agreement as yet (tendency towards

services) Potential customs revenue losses on

digitized products

Digitized products - definition

Can be delivered physically or digitally Can be identified by HS code Can be transformed into digital format Physical delivery: via carrier medium Digital delivery: via networks Books, software, music, film, video

games

World Trade in DP, 1999

World Developed c. Developing c.

Total imports, US$ bill. 48.2 40.5 7.7

Total exports, US$ bill. 46.4 41.0 7.7

DP imports, % share 0.9 1.0 0.4

DP exports, % share 0.9 1.1 0.4

% share world DP imports 100 81.5 18.5

% share world DP exports 100 88.5 11.5

Annual growth rates of DP imports

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1991 1992 1993 1994 1995 1996 1997 1998 1999

Developing countries Developed countries

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1991 1992 1993 1994 1995 1996 1997 1998 1999

Developing countries Developed countries

Annual growth rates of DPexports

DP exports by commodity group

02468

101214161820

Print Software Sound Videogames

Film

US

$ b

illio

n

Developed Countries Developing Countries

Applied MFN rates on DP imports, 1999

02468

1012141618

World DevelopingCountries

DevelopedCountries

%

average MFN import-weighted MFN

Which countries levy the highest tariff rates on DP? All countries: Burkina Faso,

Morocco, Pakistan, India, Nigeria, Zimbabwe

Developed c. and transition economies: Latvia, Israel, Russia, Romania, Hungary, Czech Republic, Iceland

DP Tariff Revenues, 1999

0.00.10.20.30.40.50.60.70.80.91.0

US

$ b

illi

on

World Developedcountries

Developingcountries

What other duties are levied on DP imports?

Customs surcharges fees, uplifts, statistical taxes, port taxes add 7 %

Internal taxes VAT, sales taxes, consumption taxes add 15 %

DP Import Revenues, 1999

0 1 2 3 4 5 6 7 8

Tariff

Tariff and cust.surcharges

Consumption tax

All import duties

US$ billion

Developed countries Developing countries

Shares of DP Import Revenues in Total Gov.Revenue (%)

Tariff/ Tariff/ All duties/ import rev. total rev. total rev.

World 1.7 0.16 0.5

Developed C. 2.7 0.04 0.4

Developing C. 1.4 0.16 0.6

Evidence of substitution

Potential vs. actual impact: Is digital delivery already replacing physical delivery?

Examples and trends (Forrester): digital CD sales will overtake physical sales by

2004 publishing industry: 17.5% of revenues will result

from digital delivery by 2005 22% of online sales of DP will be delivered digitally

in 2004 (software 40%, music 25%, video games 14%, books 14%, film 1.5%)

Conclusions - Challenges

Potential tariff revenue losses are higher in developing countries (but are small in relative terms)

Potential tax revenue losses (VAT) are significant in developed countries

Developing countries will be net e-commerce importers (in the short-medium run)

Enforcement of tax and tariff payments related to digital delivery

Conclusions - Opportunities

Cheaper imports will benefit consumers and businesses

E-commerce will spur cross-border trade (highest growth rates in developing countries)

Developing countries and economies in transition are diversifying into exports of ICT-related products and services and gaining market share

ITU Regional Seminar on E-commerceBucharest, Romania14-17 May 2002

Thank you

www.unctad.org/ecommerce

susan.teltscher@unctad.org