Tax challenges of the Digital Economy Essay Singapore

With the advent of technological advancements, every transaction nowadays is obtained via online mode or digitally. As digital transactions increase, day by day so increase the risk or challenges. The consequence of the rapid growth of the digital economy across the globe and in developing countries reflect in its tax mechanism.

As in many countries, the tax mechanism introduces in a digital mode makes it easy for the citizens to avail the services. But on the other hand, this solved essay example also illustrates the challenges that exist in the tax mechanism in the digital economy.

As the tac system is not fully developed in developing countries and certain loopholes need to be taken into consideration for making the economy robust. Despite all the advantages of tax mechanisms digitally, they pose certain challenges in the digital global economy.

As it’s true that governance of every country depends upon its taxation system prevailed and as far as the digital economy is concerned, it is important to tighten up the security level and meet the tax challenges.

To develop such techniques that help in resolving the tax challenges in a developing country, it is important to note the measures taken by the country and authorities.

To meet the challenges posed in the digital economy as far as the tax system is concerned, the developing countries adopting unilateral measures. To abolish tax evasion, profit shifting, tax theft, etc countries develop and consistent participation in developing international taxation forums for the better implementation of the tax system.

And to develop such a forum, countries develop the system of untaxed in C2C transactions and boost the administration work.

Digital economy and transaction.

The solved essay sample illustrates how the tax system is closely connected with the tax system or transaction. The transaction has been conducting digitally and the digital economy comprises digital knowledge, communication technology, information technology, etc and understanding all such components is necessary to meet the tax challenges.

The digital transaction is driven by the factors like information technology and as far as the tax system is concerned it is important to keep an eye for proper tax calculations. It is important to comply with the tax legislation along with the UNCITRAL model that influences the information technology mechanism in the country. The digital transaction and filing of tax returns are taking the shape of the digital economy.

Accelerating the features of the digital economy.

The solved essay reiterates the number of advantages observed from the result of academic studies as well as experiments. Such factors provide a high-speed momentum in the economy of developing countries some of the advantages can be seen in saving mode that includes the saving of following aspects such as time, money, paper, and reliance on data, network effects, etc.

The challenges of tax are seen in both forms of taxation system that is direct and indirect tax and domestic as well as international taxation system. And such issues if tax emerges from tax avoidance that take a shape of tax evasion ultimately.

Some of the key challenges of tax in the digital economy are as follows:-

Loss in tax revenue.

The rapid growth in the digital economy laid down a strong effect in the tax procedure that comprises of loss in tax revenue. Some certain issues and problems have been facing by authorities in reckoning the tax operation in the country. There are several ways in which multinational companies avoid the tax liability to procure high-profit margin such as manipulating the rules of tax and PRC’s tax policies with those countries which develop lower tax rates.

Missing Taxable Matters

In the digital economy, it becomes quite tough to ascertain the jurisdiction of principal and subordinate offices of the undertaking and apply tax rules on such establishments. This creates a mess in identifying the taxable entities that ultimately lead to a loss in tax data and there are certain examples of the means that are online marketing, advertising, social media advertisement, etc.

Inadequate VAT

The solved essay explains how tax via digital economy resulted in inappropriate value-added tax collection and majorly in B2C and C2C dealings. In the digital economy, it becomes difficult to assess the vat charges in the goods holding low cost and face challenges on the service and intangible transaction that finished via cross border dealings. As in consumer-to-consumer transactions, the value-added transaction is not applicable and in such dealings, two entities are either individual or households.

Ambiguity in income classification

The tax mechanism in the digital economy comes up with challenges like opacity in ascertaining the income and what would the rate and taxation means for the same. It is tough to determine the source of income and distinguish such income in various heads as service fees, other heads, business profit, long-term or short-term gains, etc. This unclarity in classification resulted in challenges for the authorities to resolve.

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