Digital economy poses a challenge for international taxation: UN official

ISLAMABAD: The emergence of the digital economy has posed an unprecedented challenge to international taxation, and the nexus principle, which requires personal or physical presence as the legal basis for imposing taxes is fundamentally shaken, said a top official of the United Nations in Asia and the Pacific region in an interview to Dawn.

United Nations Under-Secretary-General and Executive Secretary of the United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP), Armida Salsiah Alisjahbana said a strengthened international cooperation is needed to establish an up-to-date international tax regime, preferably on a multilateral basis, to address these challenges and to ensure a fair allocation of tax revenues across country borders.

“The business models of digital economy have facilitated increasing separation of economic activities from physical or personal presence. With the expansion of digital sectors, the friction between the nexus principle for taxation and business models in the digital age is leaving growing shares of the economy untaxed or under-taxed, and this problem is further complicated by digital intangible assets,” Ms Alisjahbana explained.

In the interview, Ms Alisjahbana said that the exact scale and pace of the digital revolution over the coming years is difficult to precisely predict. “We need to be prepared by shifting our focus from ‘digital skills’ to support ‘skills for a digital age, essential for a workforce fit for the fourth industrial revolution.”

A shift in thinking in traditional education delivery to life-long learning, and social safety nets will be critical to deal with current and future technological transitions, she said.

She said that ESCAP has advocated for a regional solution to enhance electronic commerce, including under its Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific.

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