A Critical Assessment Of The Application Of Ethiopian Vat On E-commerce

This study was intended to assess how the current VAT system of Ethiopia is applicable on e-commercerntransactions. The study was guided by the following objectives; analyze the prospects and weaknesses ofrnthe existing VAT law in taxation of e-commerce, take lessons from foreign jurisdictions on how to applyrnVAT on e-commerce transactions, and find out the challenges experienced and possible challenges aheadrnin the implementation of Ethiopian VAT system on e-commerce transactions.rnIn order to conduct the research, the study uses qualitative method with the belief that it provides the mostrnappropriate way of investigating the research questions. The necessary data to the study were collectedrnfrom both primary and secondary sources all the way through using a combination of multiple datarngathering instruments including interviews, review of relevant literatures and legislative documents.rnThe study findings revealed that that there are challenges experienced in the application of the VATrnlegislations on e-commerce transactions. This includes, the problems of the buyer’s identification,rnestablishing his location/residence and its statues (business or consumer) in e-commerce transactions, therninadequacy of the VAT Proclamation to define PE for e-commerce purpose, the absence of guidelines onrnacceptable records where goods are delivered, invoices issued and payments made by electronic means.rnAdd to these is lack of proper and adequate resources, and their usage within the Tax Authority to monitorrne-commerce transactions.rnUsing the above findings, it implied that theoretical soundness of the VAT laws would not in itself sufficernfor the implementation thereof. Given that electronic commercial activity has been evolving with therndevelopment of technology, its application should also be technology-based. Accordingly, a clear provisionrnas to what constitute PE for e-commerce purposes should be established, a special scheme, which wouldrnrequire foreign vendors involved in suppling electronic services to Ethiopian consumer to register shouldrnbe established. What is more, for the sake of effective administration and collection of VAT revenue fromrne-commerce transactions, the cooperation of the Tax Authority with various stakeholders is advised.rnKeywords: e-commerce, Ethiopia, VAT, permanent establishment

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