THE IMPACT OF ONLINE VALUE ADDED TAX ON E-COMMERCE IN NIGERIA

CHAPTER TWO

REVIEW OF LITERATURE

INTRODUCTION

Our focus in this chapter is to critically examine relevant literatures that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.

Precisely, the chapter will be considered in three sub-headings:

• Conceptual Framework
• Theoretical Framework
• Empirical Review

2.1 CONCEPTUAL FRAMEWORK

Definition of Taxation

Tax has been defined in many ways by different authors. Anyanwu (2007) defined tax as “compulsory transfer or payment of money (or occasionally of goods and services) from private individuals, institutions or and services) from private individuals, institutions or groups to the government. It may be levied upon wealth or income or in the form of surcharge on price.

According to Okpe (2008) “tax is the transfer of resources and income from the private sector to the public sector in order to achieve some of the nation’s economic and social goals, maybe in the form of provision of additional government basic services particularly in education, public health, transportation, capital formation and in the provision of facilities.

Anyanwaokoro (2004) defined tax as “a compulsory payment imposed by the government on individuals and corporate bodies in the governed area for which no direct goods or services are given in exchange of the payment made”.

Adebao (2009) also defined tax as “a compulsory levy imposed by the government on individuals and business organizations. It is a payment in return for which no direct and specific “quid pro quo” is offered by the government and indirect benefit to different individual taxpayers cannot be determined. From the above definitions Okwo (2011) summarized tax as a compulsory payment made by individuals and corporate bodies to the government for financing government expenditure or for general purpose of government aimed at improving the taxpayers welfare and in which both the taxpayer and the public at large benefit. There are three elements of taxation. These are;

• The tax base
• The tax rate
• The tax yield

The tax base is the object being taxed. Examples of tax based are income, profit and property.

The tax rate is the proportion of the value of the tax based that is paid as tax.

The tax yield is the actual amount accrued to the government in tax.

Overview of Value Added Tax (VAT)

VAT is a tax on consumption; the more you buy the more tax you pay. It is also a neutral tax on businesses in that it does not represent a real cost to anyone but the end consumer. Everybody pays tax to the Government whenever they purchase goods or services. This tax is collected for the government by the supplier of those goods and services. VAT revenue has become a significant source of government revenue in Nigeria. Therefore, the primary objective of fiscal policy is to raise more revenue through value added tax (Ademola, 2009). The tax authorities have been guided by the need to design equitable and efficient VAT system capable of complementing government expenditure and, thus, reduce recourse to public borrowing. VAT rate in Nigeria has been determined in a way that minimizes disincentive effects on economic activities. The effects of low tax effort in Nigerian have been strengthened by the value added tax system.

The concept of value added as given by Ajibola (2005) refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production. In national accounts used in macroeconomics, it refers to the contribution of the factors of production, i.e., land, labour, and capital goods, to raising the value of a product and corresponds to the incomes received by the owners of these factors. It is this value added that VAT is levied upon. Consequently, value added tax, or goods and services tax is tax on exchanges at different points. It differs from sales because a sales tax is levied on total value of the exchange. Personal end consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant proportion of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state.

According to Anyafo, (2007) a value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.

The purpose of VAT is to generate tax revenues to the government similar to the corporate income tax or the personal income tax (Anyanwaokoro, 2004).

The value added to a product by or with a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, collections, remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products.

VAT Administration in Nigeria

There is a growing recognition among developing countries of the crucial role of value added tax revenue as an instrument of economic development. Value added tax (VAT) revenues are increasingly accounting for significant proportion of government revenue to finance the required level of public expenditure both at federal, state and local government levels. Value added tax as a consumption tax has been embraced by many countries worldwide. Because it is a consumption tax, it is relatively easy to administer and difficult to evade. Value Added Tax (VAT) was invented by a French economist in 1954 as “taxesur la valeur” (TVA in French). He envisioned a sales tax on goods that did not affect the cost of manufacture or distribution but was collected on the final price charged to the consumer. In France, it is the most source of state finance, accounting for approximately 45% of state revenues.

It did not matter how many transactions the goods went through; the tax was always a fixed percentage of the final price. The tax was finally adopted by France in 1954. Upon the formation of the Common Market in Europe (now the European Union) it was decided that one requirement of joining was the imposition of a form of VAT. In 1973 the UK joined the European Union and replaced the existing Sales Tax with VAT (Ugwuanyi, 2009).

The value added tax system in Nigeria was created as replacement or substitution for the sales tax that was in operation before. It was imposed on all goods that were manufactured in the country as well as goods that had been made outside the country and were selling there (Ugwu, 2008). As per the VAT Decree No. 102 1993, certain goods and services have been exempted from the purview of value added taxation. Such goods include all exported goods, medical and pharmaceutical products, products meant for kids, basic food items, commercial vehicles and their spare parts, books and other educational materials, fertilizer, farming machines, agricultural products, farming transportation equipments and veterinary medicines and magazines and newspapers. The Nigeria Federal Government enacted the VAT Amendment Act in 2007.

The yield from VAT is fairly accurate measurement of the growth of an economy since purchasing power (which determines yield) increase with economic growth. According to Pandey, (2011) VAT is a self-assessment tax that is paid when returns are being rendered. In-built in the new tax is the refund or credit mechanism which eliminates the cascading effect that is a feature of the retail sales tax. The input output tax mechanism in VAT also makes it self-policing. In essence, it is the output tax less input tax that constitutes the VAT payable (Owler and Brown, 2007). It is the equivalent of the VAT paid by the final consumer of the product that will be collected by the government. Value added tax, also known as goods and services tax (GST) proves to be beneficial for the government. Through implementation of this tax system, government can raise revenues invisibly, where the tax is not shown on the bill paid by the buyer. VAT differs from sales tax in various aspects. While sales tax is to be paid on the total value of the goods and services, VAT is levied on every exchange of the product, so that consumers do not have to carry the total cost of tax. However, VAT is generally not applied on export goods to avoid double taxation on the final product. However, if VAT is charged on export goods, the tax amount is usually refunded to the tax payer (Fregman, 2009). The individual consumers cannot recover VAT on purchases made by them. However, businesses can recover VAT on the services and materials, which are bought by them in order to continue the supply of the products and services.

Presently, the VAT rate in Nigeria is 5%. Although VAT is a multistage tax, it has a single effect and does not add more than the specific rate to the consumer price no matter the number of stage at which the tax is paid.

Value Added Tax is administered in Nigeria by the Federal Inland Revenue Service (FIRS) through the VAT Directorate located at its Head office Abuja. Thus, jurisdiction of VAT lies with the Federal Government of Nigeria. VAT proceeds are distributed to the three-tiers of government as follows:

15 percent to the Federal Government, 50 percent to the State Governments and the Federal Capital territory, Abuja, and 35 percent to the Local Governments. Thus, on the aggregate, the state governments actually enjoy a greater portion of VAT revenue. However, this is distributed equally among the 36 states of the Federation (Nweze, 2006).

Objectives of Taxation

The main objective of taxation according to Okwo (2001) is to raise revenue to meet the cost of general administration and social services. Apart from this main objective, taxation is also used to regulate the economy and economic activities income. She further summarized the core objectives of taxation thus;

1. To raise revenue: The main aim of taxation is to raise revenue to finance government expenditure. Government imposes taxes primarily to generate revenue for the financing of its expenditures such as building of schools, construction of roads, provision of pipe-born water and the establishment of industries. All these are geared towards raising the standard of living of the citizens.
2. To protect infant industries: Government does this by import duties on imported goods so as to discourage people from buying and using them, thereby encouraging the use of locally made goods. Often tax holiday is granted to these infant industries. The effect of this is to further reduce the cost of the locally made goods. This gives the locally made goods a cost advantage over the imported ones. When importation is discouraged, more job opportunities are created and this leads to increased employment and growth of the economy.
3. To Reduce Inequality of Income: Taxes help to reduce the gap between the incomes of the rich and the poor. A progressive tax system is used to carry tax rate increases as the size of income or stock of wealth which is being taxed increases i.e more money is taken from the rich than the poor. Highly progressive taxation of income tends to reduce the consumption and accumulation of wealth by the rich.
4. To Check the Consumption of certain Commodities: Taxes are used to check commodities that are harmful to human health such as tobacco. Government can also use taxes to discourage the consumption of non-essential goods either foreign or locally produced such as expensive clothing materials. This normally leads to a rise in the prices of the affected products, hence a fall in demand.
5. To Curb Inflation: During a period of inflation, government can increase taxes to reduce disposable income and aggregate demand. Higher taxation unaccompanied by increased government expenditure will decrease consumers’ purchasing power and lower prices. Conversely during deflation, government can reduce taxes to increase disposable income and aggregate demand.
6. To correct Balance of Payment Deficits: Taxes may be imposed to reduce imports and encourage exports so as to control balance of payment deficits.
7. To Allocate Resources: Government can use taxes to allocate resources between private and public goods, investment and consumption goods. It can also be used to correct deficiencies in pricing mechanism resulting from e.g. monopoly elements etc.
8. To Prevent Dumping of Cheap Commodities: Government can impose certain tariffs to serve as anti-dumping device so as to prevent dumping of cheap commodities by certain industrialized nations.

E- Commerce

E-Commerce or Electronic Commerce is defined by www.toppr.com (2020) as the purchase and sale of goods, products, or services over the internet. Basically, e-commerce describes the use of the internet to electronically conduct business transactions (Wheelen and Hunger, 2012). It is a business which is taking place over the internet and also known as internet commerce. E-commerce is the meeting of buyers and sellers on the internet. This involves the transaction of goods and services, the transfer of funds and the exchange of data. Under the e-commerce platform, services are provided online over the internet network. Transactions of money, funds, and data are also regarded as E-commerce. The Organization of Economic Community for Development(OECD) defines an e-commerce transaction as ‘”the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders”. OECD asserts that payment and delivery do not have to be conducted online for the transaction to qualify as e-commerce. The major parties involved in e-commerce are consumers, businesses or government, operating in a business-to-business, business-to-consumer or business-to-government combination (United Nations Conference on Trade and Development. UNCTAD, 2001). Under e-commerce, business transactions can be done in four alternative ways, namely Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C) and Customer to Business (C2B). Bristol (2001) reports that the Forrester Research clearly showed that the largest estimates of ecommerce in the year 2000-global business-to-business (B2B) e-commerce alone was estimated to be US$604 billion United Nations Conference on Trade and Development. UNCTAD (2001). According to www.toppr.com (2020), by 2020, the global retail e-commerce might move up to $27 Trillion. Presently, e-commerce is one of the fastest moving industries in the world economy . It is estimated to grow by nearly 23% every year and projected to involve $27 trillion by the end of this decade (www.toppr.com, 2020). According to Duke et al. (2013), the main facilities and instruments of e-commerce, particularly in Nigeria are On-line (Web-based or Internet) Purchasing , Point-of-Sale(POS), Automatic Teller Machines (ATM) and Mobile Phone (GSM) Payments. The electronic commerce has four basic models explained as follows:

(i) Business to Business This refers to Business to Business transactions. Under this platform, companies do business with each other. This does not involve the final consumer but involves the manufacturers, wholesalers, retailers etc.

(ii) Business to Consumer Under this model of e-commerce, companies sell their goods and/or services directly to the consumers. The consumers can browse their websites and see products and pictures as well as read reviews. After doing so, the consumers place their order and the company ships the goods directly to them. Amazon, Flipkart, Jabong, etc, are popular examples of companies involved in this kind of ecommerce.

(iii) Consumer to Consumer Under this model, the consumers are in direct contact with each other. No firm is involved. This electronic platform assists merchants to sell their personal goods and assets directly to interested parties. Usually, the goods traded are cars, bikes, electronics etc.

(iv) Consumer to Business This is the reverse of B2C. The consumer provides a good or some service to the company. Electronic commerce has the following advantages:-It

(i) provides the sellers with a global reach,

(ii) lowers the transaction cost substantially,

(iii) provides quick delivery of goods with very little effort on part of the customer,

(iv) allows the customer and the enterprise to be in touch directly, without any intermediaries and

(v) allows a customer to shop round the clock.

The disadvantages of e-commerce are as follows:-It

(i) has very high start-up costs,

(ii) The e-commerce industry has a high risk of failure,

(iii) lacks the warmth of an interpersonal relationship which is important for many brands and products- a disadvantage for many types of services and products like interior designing or the jewelry business,

(iv) creates room for many security breaches where the information of the customers is stolen. [Credit card theft, identity theft etc. has remained big concerns with the customers]

(v) can create some room for the problems with shipping, delivery, mix-ups, etc, which leaves the customers unhappy and dissatisfied and

(vi) possesses some key attributes which have serious negative tax implications. see Arinze et al. (2018).

Evolution Of E-Commerce

According to Life Learners (2018), the origin of e-commerce is traceable to the 1960s when businesses started employing Electronic Data Interchange (EDI) to share business documents with other companies. In 1979, the American National Standard Institute, a universal standard called ASCX 12, was set up to enable enterprises to share documents through an electronic network. In the early days of e-commerce, there was some significant reluctance by some developed and developing countries to adopt e-commerce taxation. For instance, in October of 1998, the US Congress passed the Internet Tax Freedom Act, which restricted new internet-related taxes (see Simkin et al. (2017). The Tax Freedom Act contained some moratorium which stated that (i) there should be no new taxes on Internet access, unless such tax was imposed and actually enforced prior to October 1, 1998 and (2) there should be no multiple or discriminatory taxes on e-commerce. Due to the complexity of Internet taxation, Congress also passed this Act to give legislators time to de-fine “good public policy” with respect to this issue. The Internet Tax Freedom Act also contains some provisions with respect to (i) a 3- year moratorium of taxes on Internet access. (ii)a 3-year moratorium on multiple taxes on e-commerce and (iii)a 3-year moratorium on discriminatory taxes on e-commerce. It also established the Advisory Commission on Electronic Commerce (ACEC) in collaboration with countries from around the world and declared that the Internet should be free of new federal taxes. Straightforward as the Internet Tax Freedom Act appeared to be, it raised several questions. In the 1990s, the rise of eBay and Amazon outfits gave a boost to the e-commerce industry. Through e-commerce, customers are now enabled to buy assorted items online. E-commerce has demonstrated to be a vibrant source of economic growth in developed countries such as America, Europe, Asia and is witnessing rapid growth in Nigeria and some other African countries including Egypt, South Africa, and Kenya (Life Learners, 2018), E-commerce is used presently by more than 332 million persons around the world and is perhaps the most advanced and useful medium of commerce and communications yet created (Simkin et al., 2017). International Post Corporation (2017) provides some e-commerce figures at global and regional level, including forecasts up to 2021 and analyzes each region in terms of payment methods, preferred e-commerce platforms, m-commerce and cross-border e-commerce, Ecommerce sales worldwide were expected to continue to grow in 2017, rising 23% to reach US$2.3tn. As e-commerce in the US would be expected to grow by 15% in 2017, the Asia-Pacific region would have a 30% growth rate in 2017, thereby becoming a clear leader in global e-commerce development. The eMarketer‟s estimates show that e-commerce sales would account for one-tenth of total retail sales worldwide in 2017.Based on the former‟s estimates, double-digit growth will continue until 2021 Mobile is a key driver of e-commerce growth in North America. In 2017, m-commerce will account for 34% of e-commerce sales in the US, ahead of Canada‟s share of 29%. Consumers increasingly feel comfortable using a mobile device to shop; during Amazon‟s Prime Day in 2016, mobile app orders more than doubled compared to 2015.In the Western Europe, the e-commerce sales will increase by 12% to reach US$337bn in 2017 and by 2021, e-commerce will represent 11% of retail sales by 2021. in Western Europe. According to International Post Corporation (2017), the 2016 cross-border e-commerce shopper survey, conducted in 26 countries, revealed that Amazon, eBay and Alibaba accounted for 65% of all cross-border purchases. According to Callebaut (2017), B2C e-commerce growing fast especially in developing countries.

Nature of e-commerce

The fact that e-commerce is carried out almost exclusively via the internet makes it different from conventional commercial activities (Siliafis, 2008, p. 143). We therefore need to clarify what e-commerce is, and what it entails. While e-commerce has been defined in various ways6 , one of the widely accepted definitions is by the Organization for Economic Corporation and Development (OECD), which defines e-commerce as ‘the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders’. Under this definition, ‘the goods or services are ordered electronically, but the payment and the ultimate delivery of the goods or services do not have to be conducted online’.

Broadly, e-commerce can also be divided into domestic and cross-border e-commerce. Still, e-commerce transactions can be further classified into various categories based upon the entities involved in a transaction. They include business-to-business (B2B), business-to-consumer (B2C), consumer-tobusiness (C2B), consumer-to-consumer (C2C) and business-to-government (B2G) e-commerce (Bhasker, 2009). In addition to these categories, we have newer forms subsumed within the definition of e-commerce such as mobile commerce (m-commerce) and social commerce (s-commerce). We can additionally distinguish between three types of e-commerce: ecommerce in tangible products, ecommerce in intangible products and e-commerce in services.

Challenges To E-Commerce Taxation

Globally, the manner in which the income from a digital transaction should be characterized has not been settled, and is therefore a crucial subject of inquiry for tax purposes (Effiong, 2019). The increasing rate of international business-to-business and business-to-consumer transactions over the Internet raises questions about collecting taxes on sales. In addressing whether and how Internet commerce should be subject to taxes, countries face the onerous problem of respecting the laws of other countries. Consequently, deep concerns have been raised about the administrative feasibility of effectively taxing commercial transactions conducted on the internet. Indeed, it presents for tax administration the dangers of inefficiency on the one hand, and mistreatment of the tenets of sound tax policy on the other, with concomitant loss of tax revenues for fiscal authorities (Mikesell, 2001). Specifically, the cardinal principles of taxation such as fairness, neutrality and avoidance of double taxation may have to be compromised, while the opportunities for tax avoidance and evasion would be inclined to increasing (Krupsky, 2003). Davis and Chan cited in Hanefah et al. (2008) had earlier argued that the potential for tax avoidance goes up as physical location becomes unclear.This situation often obtains in an e-commerce environment. Actually, there is some growing evidence that the internet is being exploited by consumers for the purpose of avoided taxes (Alm and Melnik, 2005; Goolsbee, 2000; Scanlan, 2007). Literature reveals that firms take advantage of the Internet to minimize VAT payments. Also, On-line transactions generally assist in the avoidance of consumption taxes, such as Goods and Services Tax. Furthermore, according to Rosenberg (2008), commercial activities carried out through the internet usually raise serious regulatory issues which carry with them the potential of international fiscal conflicts as it relates to the determination of the basis of the transactions, and therefore where taxation should take place. According to Bayrakdar et al. (2015). The taxation policies put in place by countries based on territory and jurisdiction started to fail after improving electronic commerce. Concepts like permanent establishment, sale points, product and income classification employed in taxation process are no longer adequate. As a result of the difficulty in determining the location of the seller and consumer at transaction on internet, tax revenue loss has become unavoidable. Electronic commerce allows businesses to get their revenue without any physical presence (Basu, 2008). The advent of e-commerce has practically removed the need for physical presence in the country receiving the goods or services. Under this situation, the determination of the right to tax profits that are derived from e-transactions becomes a challenge. With regard to indirect taxes, the major issue bothers on how tax administrators will track e-commerce transactions for purposes of collecting the accruing taxes. Apart from the issues of tax enforcement and administration, dealings on digitized products raise peculiar tax concerns for both the source and destination countries. For instance, in transactions of digitized products, it is difficult to establish a source country's power to tax the income or consumption derived from the exchange. Secondly, at the moment the Internet's architecture permits downloaded digitized products to move accross border checkpoints unnoticed and be made anywhere in the world without any definite information regarding the physical location of a customer. This happens amids the prevailing international tax rules that insist on accurate determination of the customer's physical location as a prerequisite for establishing the jurisdiction of the country of origin to tax the value of the sale or revenue therefrom. An alternative to source-based taxation is to base tax jurisdiction on the e-vendor's residence based on the destination principle - a solution that would be unacceptable to countries with relatively few resident e-vendors. Thirdly, an e-commerce taxation challenge is the probability that some countries may characterize an income from transactions of digitized goods and services in a manner that is different from their physical analogs so as to gain jurisdiction to tax a digital exchange that they otherwise would have been incapable of taxing under the current tax rules.

Fourthly, with e-commerce taxation, there is the absence of a signally agreed framework for all the countries; each country has its own independence and separate legal taxation framework for e-commerce (Effiong, 2019). Fifthly, many tax payers refuse paying taxes especially if the act and cost of compliance are extremely high and time consuming. To find solution to the taxation problems of e-commerce, the Ottawa Conference was arranged. The latter resolved as follows:- (i) Conventional taxation principles should be applied to e-commerce, (ii)There should be collaboration between countries, (iii) Fair and neutral taxation should be generated for conventional commerce and e-commerce. (iv) An efficient taxation system should be provided to reduce compliance and administrative costs to businesses. (v)Tax rules should be clear and certain. (vi)Tax payers should be aware of how and in which situations they are taxed. (vii)Effectiveness and fairness should be ensured on taxation process. (vii)Tax systems should be flexible and adaptable to technological and commercial development. (viii)Taxation place for consumption tax should be where the consumption takes place (OECD, 2001) cited in (Bayrakdar et al., 2015). The practice of e-commerce around the world without any borders and under different applications of taxation on ecommerce brings about some double taxation risk which Countries overcme through double taxation avoidance agreements. However, the risk still exists when such business where is transacted between countries that do not have such agreements.

Identification of taxpayers

One of the biggest challenges that e-commerce presents to tax regimes is that it leads to disintermediation17, or the elimination of intermediaries or middlemen who are critical for identifying taxpayers in business transactions18. This may lead to loss of taxation, complication of tax administration as well as weakening of tax declaration (Qin, 2010, p 214). One of the proposed solutions to this problem includes confirming jurisdiction according to international common understanding and bilateral taxation pacts. Alternatively, the stakeholders could co-develop software or equipment to deal with withholding taxation and other declarations19. However, de Sousa (2014) warns that ‘making the virtual stores to collect taxes on behalf of the destination State would substantially increase the costs of compliance and thereby impede the continued growth of electronic trade’(p.18).

Record keeping

Another challenge identified by Jones and Basu (2002) is how to ensure that appropriate records are created during e-commerce transactions given the digital nature of e-commerce transactions which are hard to trace. These electronic transactions create enormous problems for tax authorities in establishing audit trails, in verifying parties to transactions, in obtaining documentation, and in fixing convenient taxing points20. Nonetheless, electronic records and documents must be investigated and verified to minimize tax evasion (Qin, 2010, p 214). Therefore, businesses involved in online sales and which receive orders electronically and issue electronic invoices should ensure that for every transaction, a receipt is issued and recorded and an audit trail of these can be followed with ease for purposes of collecting tax revenue.

Means of tax collection

How to ensure effective collection of VAT in the e-commerce environment is the third challenge identified by Jones & Basu (2002). For one, e-commerce increases the number of low-value shipments of physical goods which are exempted from customs duties and taxes in many countries as they fall under the de minimis rule. Additionally, it leads to discrepancies whereby foreign suppliers may be tax-exempt, whereas local suppliers would be required to charge value added tax (VAT) or sales taxes (p.37). To address these tax collection challenges, there are two alternative proposals proposed for direct international taxation of e-commerce transactions. The most feasible proposal is that of tax being withheld at source by financial intermediaries. This method of taxation entails the financial institutions’ collaboration with different states. These institutions would have to keep an up-to-date database with the tax rates of each country to be applied in the different operations. An alternative proposal is based on technological solutions whereby consumption taxes on e-commerce are collected through advanced technologies using third-party collecting agents. This system defends having software that, at the time of purchase, would apply the appropriate rate of tax depending on the destination country. This method would give the tax authorities the ability to detect and tax operations in a timely manner (Teixeira & Paiva, 2018, p. 87).

2.2 THEORETICAL FRAMEWORK

Garg (2000) model for electronic commerce taxation.

This model, also adopted by Duke et al. (2013), postulates that a number of qualities have to be met by a tax system in an e-commerce dispensation. Those necessary qualities include neutrality, efficiency, simplicity, flexibility, effectiveness as well as split of revenue in case of clash of tax jurisdiction.

Optimal Taxation theory

This theory assumes that taxes should be configured in a way that offers the best outcomes in terms of social welfare. It features two models, namely the Ramsey Rule and the Laffer Curve Model. The Ramsey Rule postulates that the excess burden of taxation will be minimized by setting the ratio of taxation in an inverse proportion with the price elasticities of demand for tangible and intangible electronic products. This model presumes that public authorities would endeavor to minimize the excess burden (efficiency loss) of taxation subject to given revenue needs. Under the Ramsey rule, the optimal taxation theory is the rate that minimizes the excess burden of taxation while at the same time generating the required revenue from tangible and intangible electronic business. The Laffer Curve model on the other hand is baesd on the contention that government will make effort to generate as much revenue as possible,not minding the efficiency losses that might result from taxation.For this model, it is only constitutional constraints and other legislations that can curtail government‟s desire for increased revenue. It considers the inverse relationship between taxation and tangible and intangible electronic products and the effect that these relationships will have on tax revenues. Literature reveals that a higher tax is not always the maximizing rate since a lower tax rate may end up raising more tax revenues than a higher one in electronic commerce transactions (see Emenyi (2013).

2.3 EMPIRICAL REVIEW

PWC (1999) sought to ascertain the steps that would encourage e-commerce among small and medium sized enterprises in Asia-Pacific Economic Cooperation area. It found that fair taxation policies for online transactions, improving telecommunications infrastructure, building a new e-commerce strategy and mass-education to increase the usage of e-commerce and incentives were prominent. Also, Bayrakdar et al. (2015) investigated the most effective barriers that e-commerce faced.The study found that the rate of regulations in the field of taxation and privacy was 8%. Even though 36% of businesses argued that effects of taxation barriers are strong, 4% of businesses claimed that taxation is not a barrier to development of e-commerce. The study concluded that the taxes with the most negative effect on the development of e-commerce are foreign taxes, local or state sales and consumption taxes. In a related study, Bristol (2001) analysed the likely implications of electronic commerce on tax revenues in the Caribbean Community. The study employed a static microeconomic approach to determine the impacts. The analysis was carried out based on the assumption that current trends of external trade and growth of electronic commerce in the region would continue, The assumptions of the study were that tax revenues would increase due to expansion of export markets, tax and tariff revenues would move up as a result of some increase in the imports of traditional goods and services tax and that tariff revenues would be lost from digitized products, It was also assumed that tax revenues would be lost from the displacement of companies at the intermediate level. After carrying out a survey among 2139 businesses chosen from production, distribution and finance sectors in ten countries, Bayrakdar et al. (2015) found that taxation barriers have 16,5% of significance Those barriers affect distribution sector mostly and finance sector at the least. Further, Scupola (2003) examined the e-commerce adaptation of small and medium sized enterprises in South Italy. The author found that tax reduction, financial incentive, informing processes rising rate of speaking English enable adaptation to e-commerce. Cmat and Deirmenci (2003) examined fiscal liabilities on telecommunication sector and found that the biggest problems that prevented development of e-commerce are uncertainty in taxation and lack of other legal regulations. Going forward, Tigre and Dedrick (2004) examined Brazilian firms and found that the concerns about taxation among e-commerce barriers have 26.8% significance. This barrier was seen to be having further effect upon small and medium sized enterprises. Bayrakdar et al. (2015) also investigated the barriers and opportunities of e-commerce. This study was conducted in the countries of the European Union. The outcome of the study shows that special payment methods and differences of tax regulations among countries have brought about some extra costs and administrative problems and that those are barriers to e-commerce. In a more recent study, Duke et al. (2013). Estimated the contributions of e-commerce activities to the national tax revenues in Nigeria, against the background of some country-specific problems. The study used a data set covering the periog between 2008 and 2011. A model was developed that measured the statistical significance of indirect taxes sourced from four proxies of e-commerce, namely Automatic Teller Machines (ATM), Point-of-Sale (POS), On-line Purchasing (Internet Purchasing) and Mobile Phone Payment (GSM). The results obtained show that e-commerce transactions have a very low overall contribution to Nigeria‟s tax revenue. Further, the study found that while tax revenue contributions from ATM and POS are relatively significant, those from Internet Purchasing and GSM are insignificant.

Simkin et al. (2017) explored some of the issues concerning both domestic and international internet taxation and reviewed the Internet Tax Freedom Act,. It also analyzed e-commerce and its effects on taxing systems throughout the universe and highlighted the arguments for and against e-commerce taxation and regulation. Arinze et al. (2018) sought to ascertain whether or not e-commerce business segment should be taxed. Secondary data which were obtained through archival documents, electronic books and journal publications, online research publications by authoritative research firms and textbooks on law and taxation studies were the major source of information employed for the empirical work The study found that E-commerce poses a lot of questions to tax administrators and governments on how to protect their revenue base. At one extreme, it is contended that e-commerce should in some sense be allowed to take place in a tax-free environment. At the other extreme, some speculate that new taxes should be specifically designed to tax e-commerce. The study found that neither of these views proves acceptable to governments as the first would lead to governments being unable to meet the legitimate demands of their citizens for public services and induce tax distortions in trade patterns, while the second approach could obstruct the development of e-commerce and lead to the technology being driven by taxation. After observing that the Nigerian tax system had witnessed various policy changes such as the introduction of the Treasury Single Account, the 2017 National Tax Policy, Bank Verification Number, the Taxpayer‟s Identification Number (TIN), the automated tax system and e-payment system procedures all geared at a more effective and efficient system of tax administration, Effiong (2019) examined the Nigeria Tax System. The study suggested strategies that would enable the nation benefit from the phenomena of globalization and technological advancement through electronic commerce taxation.