Consumption Taxation in a Digital World: A Primer

The paper reviews the economic and administrative issues that arise in the taxation of electronic commerce; addresses how best to meet the criteria of an ideal tax system; and examines recent policy developments.It is argued that destination-based taxation-is presently the norm for goods taxation is technically more complex for digital products and intangible services sold over the Internet, reflecting the difficulty of determining the location of the buyer and seller.Most of the potential solutions to this problem require a great deal of administrative cooperation between national tax authorities.Case studies of several countries show that policy responses to electronic commerce have di.ered, with the European Union taking the lead on implementing a system of destination-based registration.