Consumption tax collection models in online trade in digital goods

Abstract

Value-Added Tax (VAT) is an indirect tax levied on the supply of goods and services. Governments raise revenue by collecting VAT in order to facilitate the maintenance of basic services for the general population. Challenges in VAT collection arise from the supply of digital goods to consumers by means of e-commerce transactions. Moreover, VAT collection mechanisms that do not adequately cater for the collection of VAT on the supply of digital goods results in under-taxation and VAT fraud. The use of an intermediary is a more effective method of collecting VAT on e-commerce transactions since it shifts the compliance burden away from foreign online businesses. VAT legislation should be amended to cater for the collection of VAT by intermediaries.