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The 13th Ministerial Conference of the World Trade Organization (WTO) has reached an agreement to extend tax exemption for e-commerce digital products such as software, music, and movies for an additional 2 years.
According to information from the Financial Times, delegates attending MC13 reached the agreement to extend tax exemption for e-commerce digital products after India and South Africa withdrew their objections to the proposal following 5 days of negotiations. The MC13 conference lasted longer than initially planned due to disagreements and to avoid transferring the proposal to subsequent meetings.
As a result, from the conclusion of the conference until the next MC14, customs duties on electronic transmission transactions will not be applied. This is the WTO’s official announcement on the matter. This agreement has been extended for two years at a time since 1998.
The latest agreement reached at MC13 is considered a significant step forward for the WTO amidst its efforts to control the rise of protectionism and subsidy policies from the United States, China, and other countries.
However, WTO member countries are still racing against time, striving to complete the classification of digital transactions that will be taxed in the future before the extension order is no longer passed.
Extending tax exemptions for digital goods will support major technology companies worldwide while delaying competition from developing countries.
On the other hand, this tax exemption extension will have a negative impact on government revenue as physical products such as DVDs and CDs are now almost entirely replaced by digital products. Without taxation on this source, national budgets will suffer significant losses, especially for developing countries with more digital product-producing and trading enterprises (compared to less developed countries).
Currently, major technology companies such as Google and Microsoft generate hundreds of billions of dollars in revenue annually from selling digital products and services. Not taxing these revenues will result in significant revenue losses for countries.
Furthermore, not taxing digital products will also negatively impact developing or less developed countries as their digital enterprises will struggle to compete with technology giants from developed countries. This could lead to a lack of incentive for technological development among their businesses, thereby affecting the digital market in the long run.
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