Fiscal Revenue Mobilization and Digitally Traded Products: Taxing at the Border or Behind It?

By Tibor Hanappi, Adam Jakubik, Michele Ruta

September 7, 2023

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Format: Chicago

Tibor Hanappi, Adam Jakubik, and Michele Ruta. Fiscal Revenue Mobilization and Digitally Traded Products: Taxing at the Border or Behind It?, (USA: International Monetary Fund, 2023) accessed November 13, 2024

Summary

Digitalization has the potential to bring great economic benefits, but it is also creating new challenges. This note focuses on trade in digitized products, its fiscal revenue implications, and the appropriate role for domestic and border tax instruments in this context. As digitized trade increases, in part replacing physical trade, developing countries that rely on tariff revenue to support fiscal capacity will face the difficult question of how best to tax these new trade flows and maintain fiscal balances. This note shows that, independently of the future trajectory of trade in digitized products, broad-based nondiscriminatory value-added taxes are preferrable to tariffs both from an economic efficiency and from a revenue standpoint. These taxes are also easier to implement and administer. In this context, the World Trade Organization (WTO) moratorium on customs duties on electronic transmission can help to effectively channel developing countries’ tax reform efforts in a more efficient direction. This transition would require further investment by the global community in modernizing the tax and customs infrastructure of developing countries to adequately meet revenue needs in the digital era.

Subject: Economic sectors, Tax policy, Taxes

Keywords: Digital trade, Tax policy, Trade in services

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

IMF Notes No 2023/005
Stock No:

INSEA2023005
ISBN:

9798400253614
ISSN:

2957-4390

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