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Electroniccommercepaper-18Decmber2013.doc

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  The Challenges to taxing e-commerce: A Comparative Analysis for the Paciic   Mary Low, Lice Lewenigatu Kabasunakatuba, Umesh Sharma*Department of AccounngWaikato Management SchoolPB 3105, Hamilton 3240New Zealand.Email: ups@waikato.ac.nzPhone: 64-7-8384466*Corresponding author.  The Challenges to taxing e-commerce: A Comparative Analysis for the Paciic  Abstract  This paper examines the challenges that electronic commerce poses to the taxing jurisdictions of thePacific Island countries using Fiji and Tonga as case studies. The study is a comparative analysis between the current impact of tax and e-commerce in the Pacific with New Zealand and Australia as benchmark countries. Empirical evidence was collected through semi-structured interviews with theInland Revenue tax auditors of Fiji and Tonga. Research findings reveal that the nature of thechallenges identified for the developed countries are also applicable to Pacific Islands as developingIsland states but with varying degrees of complexities. The findings reveal that the two Pacific Islandcountries need to strengthen their electronic commerce policies and amend current tax laws. This willenable the taxing authority to enable tax practitioners to work within the strong and firm reach of their tax legislations. The paper contributes to the limited literature on accountability in relation to taxing e-commerce in less developed countries such as the Pacific Island nations.Key words: Taxation, electronic commerce, accountability, Fiji, Tonga, 2  The Challenges to taxing e-commerce: A Comparative Analysis for the PacificIntroduction E-commerce transactions have grown immensely over the past decade (Hanefah et al., 2008; Chou,1999; Li, 2000). E-commerce had introduced the world with a new mechanism of commerce which isfaster and easier (Edwards & Waelde, 2000). The rapid growth of e-commerce has shaped a revolutionin global retail trade that is opening up new consumer markets across border and continents (Hanefah et al., 2008). The growth in e-commerce has imposed a number of challenges to the governmentadministration in relation to the tax system (Hanfah et al., 2008; Edwards & Waelde, 2000). E-commerce has shaped a cyberspace trading whereby the businesses are engaged in a trade withouthaving a physical presence. The absence of physical presence has distorted the conventional tax principle, which is predicated on identification of physical presence. This has shaped the governmentin many countries with a new challenge of tax problems- loss of tax revenue (Thomas, 1999).This paper examines the challenges that e-commerce poses to the taxing jurisdiction in the PacificIslands by using case studies of Fiji and Tonga. The Organisation for Economic Co-operation andDevelopment (OECD) define electronic commerce as ‘commercial transactions occurring over networks using the Internet (OECD, 2008). Wigand (1997) explains that “broadly speaking, electronic commerce includes any form of economicactivity conducted via electronic connections” (p. 2) and that the “bandwidth of “electronic commerce”spans from electronic markets to electronic hierarchies and also incorporates electronically supportedentrepreneurial networks and cooperative arrangements (electronic networks)” (ibid). He further explains that the market coordination mechanism is their common characteristic where services withinthe tourism, finance, or insurance industries, but also product distribution and customer services, aretypical fields of application. However, Wigand (1997) also presents that “delineating among differingforms of electronic markets becomes even more difficult, as: (1) Organizational boundaries change or disappear and, as market coordination forms, may also find a place within organizations themselves;(2) Value-added chains change, and value-added activities are newly distributed and (3) Customers become part of the value-added chain, and private citizens become entrepreneurs on their own” (p. 2)The creation of this “bandwidth of electronic commerce” (Wigand, 2006, p. 2) through the use of modern technology has been utilised by some of the Pacific Islands (PI) nations to create government portals. For example, the governments of Fiji, Tonga and Vanuatu have made their services and its 3  related information more accessible to their citizens through the use of these portals. Electronic state portals can be utilised in the form of government-to-citizen (G2C) and vice versa.EC is argued to be conducted in the online environment; fundamentally it can be said to beconventional business traded through virtual space. Palil (2004) defines it as a normal transactionshifted into Internet. The Internet became useful for commercial purposes in 1994/1995 (Senn, 2000).In the late 1990s cyberspace became a defacto synonym for the Internet and indicate the ‘geographicalspace through and in which electronic commerce took place’ (Hoffman & Novak, 1996; Hardy &Horner, 1999). The use of a computer is a prerequisite to the ability to communicate and tradeelectronically. The website home page becomes the virtual storefront. For this research the qualitative data collected was from the Inland Revenue (IRD) offices in Nukualofa, Tonga and Suva in the Fiji Islands. Tonga’s audit division consisted of ten auditorsconducting audits of all businesses with no specifications on the size of business audited. On the other hand, Fiji’s compliance division consists of tax auditors that conduct audits for the small and medium(SME) businesses and those that audit large and international businesses (L&I). There are 12 auditorsin the large and medium section. The large and international businesses are companies with more than$FJ 50million turnover whilst the SME auditors deal with those businesses that earn less than $FJ 50million (Fiji Revenue & Customs Authority 1 , 2011a).After the dot.com market collapse there was a notable increase into e-commerce. There was a vastmajority of electronic commerce research into the following geographical areas by way of priority being:1.North America2.Europe3.United Kingdom4.Scandinavian Countries5.Asia especially China.However, it was stated that the ‘Pacific Rim’ was understated in e-commerce research (Wareham,Zheng & Straub, 2005; Evans, 2007). Therefore this research should be helpful in generating further discussion in this area as the ‘diffusion and implementation of e-commerce in developing countrieswill command increased attention’ (FRCA, 2008). The Fiji Revenue and Customs (FRCA) are awarethat they will continue to face challenges arising in their operating environment (FRCA, 2008). 1  FRCA for future reference. 4

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