Introduction

Abstract

The fundamental principle of VAT remains invariable – VAT is an indirect taxing system which is based on consumption. VAT is levied on goods and services consumed by the taxpayer whereby the end user bears the brunt of the tax as it is a ‘consumption tax’.

The European VAT system provides an excellent example of harmonization. Several Southern Hemisphere countries have adopted a variation of the New Zealand VAT legislation. Canada imposed both retail sales tax and VAT systems, and in some provinces a harmonized VAT system which is effectively both retail sales tax and VAT imposed together. The Japanese consumption tax has departed from the EU VAT system. The above specified VAT systems represent the basis of all implemented VAT systems.

A point at issue is that a small variation in legislation may cause diverse implications and application of VAT legislation in respect of the virtual world.

The investigation of VAT as a possible eCommerce taxing solution should of necessity probe the effectiveness of eTransaction VAT collection and the effectiveness of the monitoring of VAT in eCommerce, and the application of VAT in the virtual world.

The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing” – Ascribed to Jean Baptist Colbert (“French statesman, chief minister to Louis XIV (1665–83). A vigorous reformer, he put order back into the country’s finances, boosted industry and commerce, and established the French navy as one of the most formidable in Europe. His reforms, however, could not keep pace with the demands of Louis’ war policies and extensive royal building programme, and by the end of Louis’ reign the French economy was again experiencing severe problems.” [op cit,Oxford English Reference Dictionary, (Second Edition), (1996), USA. p282]) (1619–83)