These are many factors which can lead to evasion the
collection by e-commerce. The section starting from 108 to 112 has
enunciated in Income Tax Ordinance of 2001 related with the
antiavoidance measure that could be adopted by the commissioner for the
purposes avoidance of the taxes. In spite of fact that the antiavoidance
provisions are available for curbing the avoidance of the taxes but the
legislate provision are not sufficient to meet the complexities of
e-commerce transaction owning to following factors.
THE CONCEALMENT OF A TRANSACTION
Thus far we have examined the Internet's impact on
existing taxation frameworks on the assumption that any transactions
conducted over the Internet would be to some degree either self-reported
or within the investigative and enforcement powers of revenue
authorities. This however is not always the case. In fact, the special
characteristics of the Internet, i.e. its lack of central control,
combined with its international reach make it very difficult, if not
impossible, to regulate the vast amounts of money that are expected to
travel through it. The Internet is used for tax avoidance and other
criminal shifting of income.
The web server could be located any where,
irrespective of fact that transaction has been taken place, the remote
web server location provide easy room for the concealment of the
identity of the transaction.
There is very ineffective construction of section 108
of income tax ordinance regarding the question of transaction which has
realised in an arm's length transaction,"...The Commissioner may,
in respect of any transaction between persons who are associates,
distribute, apportion or allocate income, deductions or tax credits
between the persons as is necessary to reflect the income that the
persons would have realised in an arm's length transaction."
The strict construction statute with intrinsic aid of
appropriate phrases conveys exact meanings that can lead to exact
interpretation of statute according to intention of legislatures. The
transaction has been conducted by e-commerce means requires substitution
of texts which could embody the scientific mechanism into statutory
The Sub-section 3 of section 111 of the Income Tax
Ordinance related with the antiavoidance policy, the authority has been
vested on the commissioner to question the satisfactory account of the
expenditure of the account of other resources,"...and the person
offers no explanation about the nature and source of the amount credited
or the investment, money, valuable article, or funds from which the
expenditure was made or the explanation offered by the person is not, in
the Commissioner's opinion, satisfactory, the amount credited, value of
the investment, money, value of the article, or amount of expenditure
shall be included in the person's income chargeable to tax under head
"Income from [Other Sources"] to the extent it is not
HIDING IDENTIFICATION OF THE PARTIES TO A
TRANSACTION, IN PARTICULAR THE TAXPAYER
The taxpayer can hide the identity of parties by
tampering the database the website, where it has been uploaded.
DELETION OF THE DATABASE OF A TRANSACTION
Where the declared value of any investment, valuable
article or expenditure of a person is less than the cost of the
investment or valuable article, or the amount of the expenditure, the
Commissioner may, having regard to all the circumstances, include the
difference in the person's income chargeable to tax under the head
"Income from [Other Sources"] in the tax year in which the
difference is discovered.
The deletion of the database is possible within
fraction of the moment, which could provide enough opportunity for the
tax payer to tamper with the record of the transaction in remote server
and evade imposition of taxation.
SECURITY AND PRIVACY
There are often privacy and security contract between
the hosting site and their clients that provide room to the website for
maintenance of the security and privacy of the database. The level of
maintenance of the security and privacy provided by the web servers to
their web hosting clients often provide opportunity to the taxpayer to
tamper the record and provide shelter for tax avoidance.
There often arise jurisdiction problems, the taxing
authority have the jurisdiction to enforce the any order for access to
the data base of the website.
Look here the power has been restricted under the
section 94 of C of Cr.P.C. (Act V of 1898) for getting access to banking
records,"...Provided that no such officer shall issue any order
requiring the production of any document or other thing which is in the
custody of bank or banker as defined in Banker' Evidence Act, 1891(XVII
of 1891), and relates or might disclose any information which relates to
the bank account of any person except..."
The first and lesser problem relating to the
regulation of Internet commerce for tax purposes is the uncertainty of
whether current laws will even apply to financial transfers on the
Internet. By requiring very specific documentation of every transaction
the government can attempt to extend the regulations that apply to paper
based banking into "cyber banking". Nevertheless, it appears
that this legislation will primarily be targeted at technology such as
automatic teller machines and wire transfers, but will not contemplate
newer banking applications such as the Internet. For example, the
requirements that consumers receive receipts and periodic statements
reflecting electronic transfers of money do not make sense when applied
to stored-value cards that operate independently of a bank account.
Stored value cards will likely replace cash to a significant degree as
we move towards an increasingly paperless society.
ABSENCE OF INTERNATIONAL TREATIES
As the Internet evolves and becomes more accepted as
a commercial trade route, companies on the Internet will have to abide
by their own domestic sales tax laws. The same may be true for customs
duties in the form of a withholding tax. But suppose a company, is
operating a commercial Web site that is hosted by a computer in a tax
haven country. The ramifications to the concept of
electronic-cross-border shopping could be very serious for government
revenues. There would be no way for governments to collect sales taxes
because of the lack of a treaty, and there would be no way to collect
customs taxes because of the technical impossibility of customs
Here are illustrated principals and devices are used
for purpose of curbing the tax evasion.
RECONSTRUCTION OF TAX STATUTES BY PRECEDENTS:
There is no precedent available because of the non-legislative areas of
taxation. Nevertheless foreign precedents are admissible under CPC of
Act (V of 1908). Here leading cases have been conducted in United State
which can provide extrinsic aid in construction of statutes.
CONSTRUCTION BY FOREIGN AND DOMESTIC STATUTORY
PROVISIONS: There are few
statutory amendments have been made to remove the inadequacy and
deficiency in law of evidence to provide legal frame work for creating
evidential ground for collection e-commerce taxation. However the taxing
authorities can get benefit of the promulgation of transaction law. This
is big question mark for revenue authorities, how they can implement it?
THE CERTIFICATION SERVICE PROVIDER:
Under subsection 1 of Section 24 of electronic Transaction Ordinance
2002 deals with establishment of electronic certification
council,"... The Certification Council may grant accreditation to
certification service provider, its cryptography services, electronic
signature or advanced electronic signature and security procedures who
comply with the criteria for accreditation specified in the
Under subsection 1 of Section 19 of electronic
Transaction Ordinance 2002 deals with extension of permission to
accredited Certification Services Provider to provide certification of
Currently no Computer Forensics Authorities are
running their business in Pakistan, reason may be, no efforts are made
to provide legal framework for establishment of certification
authorities and to discussion the economic measures for their promotion
are out scope of thesis.
COMPUTER FORENSICS AUTHORITY:
There are impartial computer
forensics authorities who provide all litigation function at request of
courts and their services can obtain for getting assessing computer
evidence. Computer Forensics identifies, acquire, restore, and analyze
electronic data in litigation.
Here need to encourage the computer forensics in
Pakistan for getting accurate information for digital evidence. Their
services can be obtained by contractual basis, or they can be
incorporated in taxing authorities as confirming them special inspection
For controlling tax evasion, we need
to establish Surveillance authority for constant monitoring of the
website' database by giving power of system hacking. Unless and until
the surveillance authority is not established, it would not easy to
verify the record keeping requirement of sellers of the website whom
database is not hosted in Pakistan.
The establishment of the surveillance authorities
shall be permanent body of tax machinery to provide vigilance facility
to all transaction has been taken place by e-commerce, and if, any other
service is sought of any independent computer forensic authorities, the
responsibilities should be vested on the surveillance authority to
receive reports from these computer forensics authorities.
These surveillance authorities often gave the power
to hack the any system for sake of getting appropriate information for
verification of record. Furthermore more we need to define the power the
surveillance authority and should legislate the limit the powers enjoyed
by these authorities for purpose mentioned above.
There need also appropriate co-ordination of the
surveillance authority with Tax officer for smooth running of Tax
There must be anti-avoidance provision be
incorporated in Sale Tax Act of 1990 in order to curb the avoidance of
taxation by maintenance of e-record at remote web servers, and the above
mentioned tools of avoidance be made part of the sale tax statute to
halt any such evasive tendencies of taxpayers.
In the central excise duties rules specific amendment
be made to incorporate, computer forensics, proposed vigilance authority
as part of the tax structure so that the avoidance of the tax be
The similar types of recommendations are suggested in
the Income Tax Ordinance 2001 for future legislation on income derived
from electronic commerce sources so that rapid increase in e-business
should be placed under tax net and its mitigation, evasion and avoidance
of taxation be eliminated at desired level.
It is here concluded that anti-avoidance tools as
used by various developed states for the purpose of curbing the
avoidance of the taxation, for most important of them are computer
forensics, vigilance authorities, and by making appropriate
reconstructions of the tax statutes and lastly the avoidance of
imposition of the double taxation by signing tax treaties with other
Author is a student of LL.M Programme in Quaid-e-Azam
Law College Lahore Pakistan and conducting research "Legislation of
Electronic Commerce Taxation in Pakistan".