International tax regime stressed for growing digital economy

Updated September 29, 2019

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The emergence of the digital economy has posed an unprecedented challenge to international taxation, and the nexus principle, which requires personal or physical presence as the legal basis for imposing taxes is fundamentally shaken, according to the top official of the United Nations in Asia and the Pacific region. — Dawn/File
The emergence of the digital economy has posed an unprecedented challenge to international taxation, and the nexus principle, which requires personal or physical presence as the legal basis for imposing taxes is fundamentally shaken, according to the top official of the United Nations in Asia and the Pacific region. — Dawn/File

ISLAMABAD: The emergence of the digital economy has posed an unprecedented challenge to international taxation, and the nexus principle, which requires personal or physical presence as the legal basis for imposing taxes is fundamentally shaken, according to the top official of the United Nations in Asia and the Pacific region.

In a written interview with Dawn, UN Under-Secretary-General and Executive Secretary of the United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP), Armida Salsiah Alisjahbana said a strengthened international cooperation is needed to establish an up-to-date international tax regime, preferably on a multilateral basis, to address these challenges and to ensure a fair allocation of tax revenues across country borders.

“The business models of digital economy have facilitated increasing separation of economic activities from physical or personal presence. With the expansion of digital sectors, the friction between the nexus principle for taxation and business models in the digital age is leaving growing shares of the economy untaxed or under-taxed, and this problem is further complicated by digital intangible assets,” Ms Alisjahbana explained.

Developing countries have been advocating for a greater role for the UN system in facilitating broad-based tax cooperation and international tax reforms. ESCAP, as a regional arm of the United Nations, is taking a greater initiative in facilitating regional tax dialogues and cooperation, in close collaboration with broad stakeholders. This role is especially important as Asia-Pacific remains the only developing region without a well-established region-wide tax cooperation body, UN official said.

UN-ESCAP organised last week a conference on productive job creation in the face of economic transformation in the global south.

She said that the exact scale and pace of the digital revolution over the coming years is difficult to precise predict. “We need to be prepared by shifting our focus from ‘digital skills’ to supporting ‘skills for a digital age, essential for a workforce fit for the fourth industrial revolution.”

A shift in thinking in traditional education delivery to life-long learning, and social safety nets will be critical to deal with current and future technological transitions, she said.

Universal Basic Income pilots have been trialed around the world to strengthen social protection systems to protect the workers that are vulnerable to losing their jobs in the technological transition. It is clear that new technologies could lead to the disappearance of some jobs, but they will also support the creation of others, UN-ESCAP official said.

In the area of trade policies, globally, WTO plays a key role in facilitating discussions on trade rules and practices regarding electronic commerce, yet progress under the WTO work programme on electronic commerce has been highly limited due to divided views across countries. Recent years witnessed increasing regional cooperation on electronic commerce, with 69 regional trade agreements signed in 2001-2016.

She said that ESCAP has advocated for a regional solution to enhance electronic commerce, including under its Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific.

Published in Dawn, September 29th, 2019