By Debbie-Ann Gordon, ContributorIT IS generally accepted that there are significant benefits for taxpayers and for economies as a whole, if tax laws are certain and predictable.
It is also contended that most taxpayers are averse to paying tax and if armed with the opportunity, would choose to structure their affairs so as to minimise their tax, liability. I have found that most taxpayers are prepared to pay tax if and to the extent they are lawfully obliged to do so. Often, however, taxpayers find themselves in a 'grey area' or in an 'arguable position', where the tax law and hence, their tax liability are far from clear, or where an evidently lawful position is at variance with the Revenue's position.
Lack of certainty leads to increased compliance costs, which contributes to the 'dead weight' of taxation, as taxpayers may be reluctant to engage in transactions if the tax implications are uncertain.
Regrettably, the absence of a formal system of rulings (binding statements from the Revenue upon voluntary request) in Jamaica only exacerbates the uncertainty that taxpayers face, which at times also deters prospective international investors, coupled with the austere tax penalties regime. Such uncertainty promotes tax evasion, fosters resentment and a decline in taxpayer morale, with the resultant effect that the coffer is deprived of its full entitlement.
DISTINCTIVE FEATURES
The taxation of electronic commerce is one such area that is riddled with uncertainty. This gives rise to the recurring question; is e-commerce taxable, and if so, what are the applicable rules? It is easy to say that e-commerce falls within the scope of General Consumption Tax (GCT), but the distinctive features of e-commerce compared to traditional forms of trade, provokes the question: "Which guidelines do we take into account when approaching the subject of taxing e-commerce?"
Are we attempting to 'squeeze new concepts into old bottles'? It is little wonder that the United States, the European Union, OECD countries and other countries with established GCT or Value Added Tax systems, have created clear and comprehensive guidelines on the taxation of e-commerce.
From an income tax perspective, the taxation of e-commerce presents its own challenges, but for the sake of brevity, this article seeks only to raise issues on the applicability of our GCT law to e-commerce.
What is GCT, and how does it work? Perhaps the best way to answer this question is to provide an illustration. Simplistically, say 'A' and 'B' are Jamaican residents registered for GCT. The standard rate of GCT in Jamaica is 15 per cent. 'A' is an importer of goods of varying types, including electronic equipment and he imports a high definition TV at a cost of $100,000. The importation of goods is taxable on a destination basis and therefore A has to pay $15,000 in GCT to the Revenue on importation. A then sells the HDTV to B, a retailer, at a price of $300,000. B will have to pay A $345,000. A has to transfer the amount of $30,000 (his output of $45,000 minus his input of $15,000) to the Revenue. B then sells the TV to Austin, an unregistered individual, who will use the TV to impress neighbours and friends. Austin is happy with the agreed "deal" price of $600,000 plus GCT. The Revenue is due $45,000 (B's output of $90,000 minus his input of $45,000). Therefore, GCT is charged at every stage of the supply chain (unlike the sales tax in the United States which starts at the retail stage) and the tax burden is shifted to Austin, the consumer, since 'A' and 'B' are able to deduct their input GCT from their output GCT. Furthermore, as of March 2004, if Austin's wife, also an unregistered taxpayer, hires an overseas designer to decorate their new home, or imports other services from overseas, as the recipient of such a service, she will be required to account to the Revenue for GCT on that imported service.
Moving to the matter of e-commerce, in the absence of a statutory definition, this may be simply defined as a new way of doing business, which involves the use of a chain of interconnected computers. While this method of doing business involves different configurations, this discussion has been limited to direct e-commerce which entails the online ordering, payment and delivery of intangible (an asset not having physical existence) goods and services such as computer software, entertainment content or information services. Using the parties as above, say 'A' decides to expand his customer base by supplying magazines and other literature. In order to satisfy the demand of his clientele, he enters into an online arrangement with a foreign supplier and receives the literature in digitised form, so that the literature has no physical appearance. The starting point in determining 'A's' liability to GCT is to categorise the digital supplies. This categorisation is important as it may prescribe different GCT treatments.
CONTINUES NEXT WEEK
Debbie-Ann Gordon is an attorney-at-law with PricewaterhouseCoopers Jamaica specialising in Tax Law.
