Some policymakers are concerned that their tax bases will be undermined by non-transparent digital transactions (such as down-loaded software), increased intra-company transactions (such as through build-to-order inventory control mechanisms) and cross-border service-based flows via ICTs (such as business and professional services). Research so far indicates that lost revenue on domestic transactions is fractional and that the potential loss from increased digitization of cross-border transactions also is small. 7 Good old-fashioned tax evasion should be the bigger concern of policymakers right now.
However, as the New Economy becomes more pervasive, tax regimes that depend on indirect taxes such as value-added taxes and direct tax regimes that depend on determining so-called permanent establishment for the international apportionment of tax revenues will come under greater stress. This is because the New Economy has more numerous transactions; of greater information, service, or digital content; that take place more seamlessly across international borders. The response by policymakers is to recognize that the problem is not so much now, but in the future, which gives them time to evaluate how their tax systems should evolve in light of the new economic environment.
8 Policymakers can take action right now, though, to proactively embrace the New Economy within the activities of government and gain efficiencies in procurement, administration, and service delivery. An “e-government team” can help. An e-government team is a “systems integrator” which rotates through the agencies of government and is comprised of global consultants (who have experience with different economies and technologies), local private sector firms (who know the local situation and marketplace) and people from within the specific agency of government (who rotate on to the team and then back to the agency after the agency goes on-line).
9 Finally, successful e-government is a litmus test for the domestic services infrastructures and their international linkages. If the government cannot present information to its citizens, or process tax payments through the financial system, or get procurement through the distribution system, then most probably neither can the private sector. 7 Efforts to measure the potential loss of tax revenue are difficult because of dynamic response. For the US, Austan Goolsbee and John Zittrain, “Evaluating the Costs and Benefits of Taxing Internet Commerce,” National Tax Journal , vol 52 no.
3, September 1999, pp 413-428 calculate a loss over the next few years of less than 2 percent of sales tax revenues. For the full range of economies around the world, Susan Teltscher, “Revenue Implications of Electronic Commerce: Issues of Interest to Developing Countries,” mimeo, UNCTAD, April 2000, also finds loss of tax revenues of less than 1 percent overall, although the figure is higher for some economies. 8 For an extended discussion of how networked information technologies will affect the activities of government as well a further references of international study groups, see Chapter 6 “Government Operations:
Tax Regimes and Administration, and Services in Global Electronic Commerce: A Policy Primer (2000) Catherine L. Mann, Sue E. Eckert, and Sarah Cleeland Knight, Washington, DC. 9 For further discussion of e-government teams and systems integration, see Catherine L. Mann, (2001) “E- Government in Developing Countries: Galvanizing the Sense of Urgency About Global Electronic Commerce,” manuscript prepared for the Commonwealth Secretariat Volume on E-Government, forthcoming. - 16-