Taxation in the Digital Era: Challenges and Solutions
This paper examines taxation in the digital era as a dissertation research topic, arguing that digital companies often escape fair taxation due to the intangible, borderless nature of their operations. It identifies four core features of digital business that complicate tax collection—difficulty tracking digital activities, intermediary roles, reliance on big data, and network effects—and reviews several proposed or enacted solutions, including the U.K.'s diverted profit tax, withholding taxes on digital transactions, and India's equalization levy. The paper concludes that while existing literature describes the structural challenges of digital taxation, a significant gap remains: understanding the specific problems tax accountants face when assessing and collecting digital profits.
- Introduction: Why Digital Taxation Matters: Rationale for studying digital taxation fairness and revenue
- Taxation Issues in the Digital Era: Four features that complicate digital profit taxation
- Recommended Policy Solutions: DPT, withholding taxes, and equalization levy reviewed
- Limitations of Current Tax Measures: Critiques of equity, burden, and classification issues
- Conclusion: Research gap in tax accountant practitioner experience
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What makes this paper effective
- The paper grounds its research problem in a clear theoretical principle — that profit should be taxed where value is created — and then systematically shows why digitalization disrupts that principle.
- It moves logically from problem identification (four features of digital business) to policy analysis (DPT, withholding taxes, equalization levy), giving the argument a clear scaffolding.
- Real-world examples (Amazon's 2018 tax bill, India's equalization levy, the U.K.'s DPT revenue figures) add empirical grounding to what could otherwise remain abstract policy discussion.
Key academic technique demonstrated
The paper demonstrates effective gap identification — a core dissertation skill. After surveying existing solutions, it explicitly notes that the literature describes structural challenges but does not address the practitioner-level problems tax accountants face. This framing justifies the proposed research and shows how to position a study within an existing body of work.
Structure breakdown
The paper opens with a research topic rationale (fairness and revenue sustainability), moves into a structured four-point problem analysis drawn from Sand-Zantman (2018), then evaluates three policy responses in detail (DPT, withholding taxes, equalization levy), including critique of the equalization levy's limitations, before closing with a research gap statement. This intro–problem–solution–gap structure is well suited to a dissertation proposal format.
Introduction: Why Digital Taxation Matters
Taxation in the digital era is an excellent topic for a dissertation because there is an ongoing debate about whether digital companies are paying their fair share of taxes. Some tax experts believe that digital companies enjoy effective tax rates close to zero compared to traditional companies, despite earning enormous profits. The underlying principle of corporate taxation is that "profit should be taxed where value is created" (Sestakova, 2018). However, digitalization challenges this principle because it is difficult to determine how and where digital companies create value. Digital companies also rely heavily on intangible assets and big data, which are hard to value (Sand-Zantman, 2018). Given these realities, there is a clear need to research the problems that tax accountants face when taxing digital profits.
This topic is relevant when examined from a technological perspective for two main reasons. First, taxation policy should promote fairness. Both traditional and digital businesses should bear the same tax burden. It is unfair for citizens and traditional businesses to shoulder a heavier burden simply because large volumes of digital profits go untaxed. Second, there is a need for sustainable revenues in the digital era. The digital economy is overtaking the traditional economy in terms of market presence, and if digital profits are not taxed effectively, revenue gaps will emerge and revenue bases will shrink.
References
Committee of Experts on International Cooperation in Tax Matters. (2019). Tax issues related to the digitalization of the economy: Report (E/C.18/2019/CRP.12). https://www.un.org/esa/ffd/wp-content/uploads/2019/04/18STM_CRP12-Work-on-taxation-issues-digitalization.pdf
Katz, R. (2015). The impact of taxation on the digital economy. https://www.itu.int/en/ITU-D/Conferences/GSR/Documents/GSR2015/Discussion_papers_and_Presentations/GSR16_Discussion-Paper_Taxation_Latest_web.pdf
Pemerathna, A. (2016). Economic impact of digital taxation: A case on information communication technology industry Sri Lanka. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2910328
Sand-Zantman, W. (2018). Taxation in the digital economy. https://www.orange.com/fr/content/download/47110/1371114/version/1/file/Rapport TAXATION-VF-Mai2018.pdf
Sestakova, M. (2018, February). Tax challenges of the digital economy [Paper presentation]. Management Challenges in the 21st Century, Bratislava, Slovakia.
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