These technological advancements in general and the development of electronic commerce or E-commerce in particular have the potential of adversely affecting tax revenues of nations, particularly those that fail to keep pace with thisstartling new development. They have also made the task of taxing e-gains, complex and taxing. Time is ripe to plan strategies to deal with these new challenges.

E-commerce, for which Internet provides a significant global market place, is confined, not only to trade in traditional goods and services, which it greatly facilitates, but handles, in addition, a variety of growing new products that have no physical entity. These E-products include, computer software, data and info-products, audio and visual compositions and many other services. All these are capable of production, storage, transmission, sale and even final consumption within the cyberspace. E-products are capable of delivery from one place to another, through communications, by passing traditional shopping and transportation methods and the age old formalities of crossing international borders. All such transactions can be conducted from mobile establishments, by anonymous entities and can remain invisible to the physical world. Their books ofaccounts can easily be written, amended, erased or rewritten at convenience. It is a kind of hyper world operation, beyond the laws of physical world. Internet trade is therefore likely to create holes not only in direct tax but also in sales tax, octroi, customs and excise duty collections. The very basis of income tax on cross border transactions i.e. source and residence concept become nebulous and permanent establishments vanish in cyberspace. even within the country tracing Internet transactions could pose serious problems.

Advancement in encryption technologies, presently in their embryonic stage, will further revolutionise e-commerce and greatly compound the problems of tax administrators.

The US president, Bill Clinton has announced his support to the Internet Freedom Act. The bill would block local, state and international taxes on goods and services sold on line. The National Governors Association (NGA), on the other hand, proposed an Internet Development Act, which advocates establishing asingle state wise sales tax rate on all e-commerce transactions and find a way to distribute that money to the local governments. NGA has opposed the Internet Freedom Act, arguing that Internet trade, if kept out of the tax net, could erode their tax base and drive business away from local vendors. They believe, it would hurt small business that have always been subject to sales tax and unfairly benefit large companies that could afford to sell products on the Internet.

Australia government has recently released a discussion report on its e-commerce project titled "Tax on the Internet". They propose to address most of these challenges by adapting the existing rules to the new environment. Under the existing rules in Canada, electronic transfer of information or products is not subject to customs duty. Customers are however, supposed to pay VAT on anything purchased over the Internet on the basis of self-assessment. A shift from income based taxation, to a system, based on consumption has been suggested bysome Economists. It is urged that even those taxpayers, whose income comes from invisible Internet sales, have to spend it. Some other propose imposition of what is known as "bit tax", a charge on data exchange on volume of data transmitted.

All these proposal have limitations. It is however noticed that countries across the globe have started seeking solutions. An active debate has commenced. In India too, it is time to start a public debate on this issue and evolve a sound policy framework for dealing with e-commerce. We must realise that business would have a natural inclination to flee regimes where laws are inflexible, tax rates high, procedures complicated and tax administration unresponsive. Procedures relating will have to be further simplified. Like Australia, India should also go for detailed study of e-trade practices and related issues that have tax implications. It should include a detailed working of Internet. The value of goods and services traded on the Internet will be $10 billion by 2000AD and is expected to grow exponentially thereafter. This chunk cannot be allowed to escape the tax net except at great cost to the poor taxpayers and smaller businesses.

(The author is the assistant commissioner of Income Tax, Pune)