ICC warns of risk to MSME growth posed by complex indirect tax regimes

The issues brief – the product of extensive consultation with businesses across a range of sectors participating in or affected by the digital economy – will form part of a series of briefs by ICC to assist WTO Member States in their plurilateral negotiations in Geneva. The negotiations, now involving 80 Member States, seek to achieve a high standard outcome that builds on existing WTO agreements and frameworks.

The brief, Taxation of Physical Goods in the Context of E-commerce: Avoiding Non-tariff Barriers through Simple and Consistent Design, highlights a growing concern for micro-, small- and medium-sized enterprisess (MSMEs) accompanying the impressive growth in the cross-border sale of physical goods purchased online: the propensity for Goods and Services Tax (GST) /Value Added Tax (VAT) regimes to constitute non-tariff barriers to trade unless they are designed in a simple and consistent way.

The brief sets out five key recommendations for WTO Members to ensure that their GST/VAT regimes do not hamper e-commerce growth. They are:

1. Minimise discrimination between domestic and non-domestic businesses in registration requirements and ensure tax systems are technology-neutral in application.
2. Allow suppliers, where relevant, to collect and remit taxes away from the border.
3. Maintain or establish appropriate de minimis thresholds, allowing customs agencies to focus on safety and security rather than on domestic tax collection.
4. Ensure that registration and tax payment processes are simple, consistent and non-discriminatory.
5. Do not require a place of business or fiscal representative in the country of destination in order to supply goods.

The brief also explores existing good practice, noting recent developments in Australia. Commenting on Australia’s non-resident GST model, ICC Secretary-General John W.H. Denton AO said:

“Early experience with the Australian model suggests that compliance is high, and it could be an efficient and effective way of taxing physical goods sold via digital platforms. I invite WTO Members participating in the Joint Statement Initiative to study the Australian model.”

The brief further recognises that, with the rise of digitally-intermediated goods transactions, national governments are naturally concerned with the protection of fiscal revenue. It underscores, however, that a balance needs to be struck between tax collection and ensuring that collection processes are neither overly complex nor discriminatory as to create non-tariff barriers to trade.

Noting progress made to date, Mr. Denton said:

“A lot of useful work had already been done in this area at the OECD, and it is important that Member States bear this in mind in developing principles and disciplines for non-discriminatory and frictionless behind the border measures. Globally consistent indirect tax regimes are essential for MSMEs to unlock the opportunities of digital trade.”

For further reading on global business input into the WTO negotiations, read ICC’s Baseline Position and the streamlined Five Key Ingredients for a High Standard Outcome.