Digital trade between countries is rising rapidly. Technological advances not only allow consumers to buy physical goods from abroad using e-commerce platforms, they permit the import of digitised books, films, music or even architectural plans. But that poses challenges for a global tax system which has traditionally focused on imports of tangible goods.

As artificial-intelligence, blockchain, the internet-of-things and other advances blur the distinction between goods and service, cross-border taxation becomes complicated.

A World Trade Organization moratorium on customs duties on electronic transmissions, agreed in 1998, will expire this year unless extended again. Many WTO members, including the US and European Union, want the moratorium made permanent but India and South Africa - particularly concerned about 3D printing’s impact - say developing economies will lose out on future tariff revenue as goods become increasingly digitised.

E-commerce increased the number of cross-border postal parcels more than fourfold between 2000 and 2017 to 176 million with a 30 per cent jump in 2017 alone. Around 94 per cent of these parcels were from developed economies.

Many economies apply de minimis thresholds that exempt low-value parcels from tariffs and domestic taxes.

However, these exemptions were introduced before online shopping soared and many thresholds now appear low. That can put pressure on customs authorities and may result in customs clearance delays. More generous thresholds could satisfy consumer demand for faster deliveries of small parcels.

If digital imports avoid sales or consumption taxes in the purchaser’s country, local retailers can be disadvantaged. Several economies, including the US, India, Australia, New Zealand and the EU, now therefore impose consumption tax on e-products or digital services.

Australia also requires foreign online-retailers to collect consumption taxes on low-value goods imports and New Zealand is following. But while these reforms improve tax collection and level the playing field between local and foreign suppliers, they effectively remove the consumption tax de minimis threshold, imposing tax even on low-value online purchases. Indeed, the EU intends to remove its VAT de minimis in 2021.

With criticism that large digital firms are not paying their ‘fair share’ of taxes globally, the European Commission is backing a 3 per cent digital-services tax on turnover generated within the bloc. Although member states are yet to agree this proposal, France intends to proceed with its own version and the UK has proposed a 2 per cent tax on firms’ global revenues until an international standard is agreed.

But these taxes may disproportionately affect US tech firms. Washington opposes such a tax on the basis that it would raise prices and deter investment in the digital economy.

As goods and services are increasingly delivered electronically across borders, governments must strike a balance between collecting the correct amount of tax and ensuring the taxes are not prohibitive or discriminatory.

We think the WTO moratorium on customs duties should be made permanent and de minimis thresholds expanded to enable faster customs processing of small-parcel trade. Global coordination to simplify tax regimes will also be beneficial. Most importantly, we believe policy makers should strive to avoid imposing discriminatory taxes on digital trade.

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