Taxing the Digitalized Economy

Abstract

Listen

Translate article

Growth in emerging Asian economies is predicted to remain robust, with digitalization as one of the significant contributors. However, these countries are facing difficulties in taxing foreign digitalized businesses. The current income tax system relies on physical presence to allocate the right to tax the income of nonresidents. From a general consumption tax perspective, although market countries have the right to tax the consumption of digital goods and services, they still face challenges regarding the collection and administration of this tax. While a globally accepted solution to tax the digital economy is still being formulated, some countries have chosen to introduce unilateral measures. This chapter describes the latest developments in digital economy taxation and analyzes lessons learned and policy considerations by focusing on emerging market countries. The chapter also discusses the current policy of digital economy taxation in Indonesia, the largest country in Southeast Asia. In conclusion, a general consumption tax should be applied immediately, as it does not contradict international principles. On the other hand, developing countries must actively discuss global solutions to fight for more taxation rights. Temporary measures to provide fairness and revenue sources must be applied carefully.