Published 23 July 2024
As governments move to propose new digital taxes amid a rapidly growing volume of online transactions, firms will have to navigate an increasingly intricate environment of specific trade regulations and complex tax regime requirements. As always, the burden of managing such complexity will land especially heavily on the smallest businesses. Discord in digital trade and tax policies could dramatically upend the spread of digital trade around the world.
The digital economy is critical to ensuring continued economic development across the Asia Pacific region, but its rapid growth has led to several challenges. One topic has continued to simmer in the background: the rising importance of digital trade and taxation policies.
Until recently, trade was handled by trade and commerce ministries and tax was typically managed by finance ministries or central banks. Communication between the two sides, even in a domestic setting, has been limited, and international opportunities for conversations between tax and trade have been even rarer. The digital economy and the provision of new types of cross-border trade activities continues to erode this previous division of labor between groups. Increasingly, trade policies need to reflect changes in tax policies and vice versa.
Most of the conversations about revised tax policies related to digital trade focus more on the digital elements and less on the trade aspects of cross-border transactions. One additional complication in unraveling the connections between tax and trade has been definitional: too many varieties of "tax" are frequently bundled together, especially by the trade community, with terms used interchangeably despite significant differences. Loose definitions can complicate, rather than clarify, the discussion.
Download Death and taxes: How levies on digital trade could kill MSMEs by Deborah Elms:
This paper by Deborah Elms, Head of Trade Policy, updated from an earlier version first published in 2021, looks at changing tax systems from the perspective of trade, including trade rules and regulations, and considers the implications of different types of revenue collection on the ability of firms to continue to provide digitally delivered goods and digital services across borders. As with nearly all policies, the challenges of compliance with new regimes are likely to fall particularly heavily on smaller firms. Unless and until trade and tax officials and trade experts collaborate more in making policies, the risks are high of delivering unintended consequences and rupturing a trade environment that has shown much promise.
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Author
Deborah Elms
Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).
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