VAT and the internet: the application of consumption taxes to e-commerce transactions

The taxation of citizens' consumption of goods and services is of great importance for government revenue worldwide. However, the constantly growing Internet market is changing the ways in which those goods and services are acquired and consumed, making it difficult to administer and enforce existing tax rules. Tax rules, being directly connected to the government's chosen policy of raising revenue to finance its spending on the public sector, are matters of a highly sovereign nature, and their efficient working clashes with the inherently borderless and intangible nature of the Internet. New methods of delivery and new categories of products that can be delivered between jurisdictions without passing any physical borders raise particular problems for VAT purposes. To achieve the twin goals of encouraging e-commerce and protecting national revenue bases, international cooperation must be sought in the development of mechanisms to collect tax in the new digital commercial environment. Without a mutual understanding of common interests and respect for domestic tax policies, the changing dynamic in commerce to which the Internet is giving rise may prove an unbeatable barrier to the efficient working of a VAT system that guarantees fair competition between suppliers, and provides technological neutrality and equity among consumers.