The Legal and Practical Challenges of Applying Ethiopian VAT on Electronic Commerce Transaction

Abstract

Technology has impacted taxation and the manner in which tax is imposed. The geographical foundations of existing taxing systems and non-territorial character of e-commerce is at heart of the challenge that e-commerce poses to taxation. The problems of buyer’s identification, difficulty of establishing location/residence and status of party to e-commerce transactions, the inadequacy of the Ethiopian VAT proclamation to define Permanent establishment for e-commerce purpose, the absence of guidelines on acceptable records where goods are delivered, invoices issued and payments made by electronic means, lack of proper and adequate resources within the Tax Authority to monitor e-commerce transactions are identified as the major challenges of applying Ethiopian VAT on e-commerce transaction. The article argues that a clear provision as to what constitute Permanent establishment for e-commerce purposes should be established, a special scheme which would require foreign vendors involved in supplying electronic services to Ethiopian consumer to register should be established. What is more, for the sake of effective administration and collection of VAT revenue from e-commerce transactions the cooperation of the Tax Authority with various stakeholders is advised.

Keywords: E-commerce, Taxation, Permanent Establishment, Transaction, VAT.

DOI: 10.7176/JAAS/80-02

Publication date:May 31^st 2022