The Digital Economy and Tax Justice: Evaluating the Effectiveness of Digital Services Taxes (DSTs)

Cordilia Eke *

New Mexico Highlands University.
 
Review
International Journal of Science and Research Archive, 2024, 12(01), 3233-3249.
Article DOI: 10.30574/ijsra.2024.12.1.1267
Publication history: 
Received on 24 May 2024; revised on 26 June 2024; accepted on 29 June 2024
 
Abstract: 
The rapid expansion of the digital economy has profoundly transformed global business models, enabling multinational technology firms to derive substantial profits from markets where they maintain little or no physical presence. Traditional international tax frameworks, rooted in the principle of physical nexus, have proven ill-equipped to address these new realities, resulting in significant base erosion and profit shifting (BEPS). In response, Digital Services Taxes (DSTs) have emerged as unilateral or regional measures aimed at ensuring that value created within jurisdictions through digital activities is appropriately taxed. This review critically examines the effectiveness of DSTs as instruments of tax justice and revenue mobilization. Drawing on empirical studies, policy reports, and case evidence from Europe, Asia, Africa, and Latin America, the paper evaluates whether DSTs mitigate tax avoidance by digital giants, promote fairness in tax burdens, and strengthen fiscal sovereignty. It also considers the political economy of DST adoption, the tensions between national initiatives and multilateral negotiations at the Organization for Economic Co-operation and Development (OECD), and the challenges posed by trade disputes and compliance complexities. While DSTs represent an important interim step in rebalancing the allocation of taxing rights, their fragmented adoption raises risks of double taxation, trade retaliation, and administrative inefficiencies. The review concludes that DSTs, though imperfect, have accelerated momentum toward global tax reform and have contributed to reshaping debates on equitable taxation in the digital era. Policy recommendations emphasize the importance of coordinated approaches, integration with OECD’s Pillar One and Pillar Two initiatives, capacity-building for developing economies, and safeguarding against regressive impacts on consumers and small enterprises. By situating DSTs within the broader discourse on tax justice, this paper contributes to understanding their role as transitional tools in the evolving landscape of international taxation.
 
Keywords: 
Digital Services Taxes; Tax justice; Digital economy; Base erosion and profit shifting; OECD Pillar One; Tax sovereignty; Revenue mobilization
 
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