JANUARY 23 — When most people hear “e-commerce,” they think of buying products online. But for governments, tax authorities, and regulators, e-commerce has become far more complex and crucial. 

Why? How e-commerce is defined today affects how billions in tax revenue are collected, how businesses are regulated, and how consumers are protected in the digital economy.

Traditionally, e-commerce was buying and selling of goods and services over electronic networks with access to the internet. 

In those days, e-commerce meant straightforward: “online retail” – a business selling goods through a website to buyers who paid electronically and received delivery by post or by downloading them from websites, for example software, online games, or other digital contents.

This definition worked when the digital economy was small, and when online transactions resembled traditional trade conducted through a screen computer or mobile phone rather than in a physical shop. That world no longer exists.

Today, e-commerce is not a single activity but an ecosystem. It includes large platforms such as Shein, Temu, Spotify, Google, Amazon, Shopee, Alibaba, and TikTok Shop. 

Social media sellers operating through livestreams and messaging apps, subscription services and digital content providers, online advertising, app-based services, and now, AI-driven systems that automate marketing, pricing, and purchasing.

In many cases, the platform does not own the goods, the seller is located in another country, the payment is processed by a third party, the delivery is handled by a logistics company, and the consumer interacts only with a digital interface. 

A single transaction can involve multiple legal actors across several jurisdictions. None of whom fit neatly into traditional legal categories.

As a result, it is no longer clear who the “seller” is, where the transaction takes place, or which country has the right to regulate or tax it. 

Now, e-commerce includes platforms that do not sell anything themselves. Why? Imagine influencers who promote and facilitate sales, algorithms that trigger purchases, and cross-border transactions involving multiple jurisdictions. This blurs the line between seller, intermediary, and service provider.

Because of this, international bodies are updating definitions to help governments decide who should pay tax and where. 

If e-commerce is defined too narrowly, large volumes of economic activity escape regulation and taxation. If it is defined too broadly, it can over-regulate innovation and small businesses.

Governments face a dilemma. They want to prevent avoidance and tax digital activity in a fair and equitable manner, but at the same time, they also want to encourage innovation and avoid burdening small entrepreneurs. 

The struggle to define e-commerce reflects this tension between neutrality, efficiency, fairness, flexibility, and economic growth.

The question “what is e-commerce?” is therefore no longer a technical question. It is a question about how societies choose to govern digital markets. 

It asks whether digitalisation should be a tool for inclusion, efficiency, and innovation or a loophole that allows economic activity to escape public responsibility.

As e-commerce continues to evolve through artificial intelligence, automation, and platform expansion, the definitions that underpin tax law, consumer law, and competition policy will need to evolve with it. 

Getting those definitions right will not solve all the challenges of the digital economy. But getting them wrong will make all the others harder to solve.

*Hal Lai Keong and Associate Professor Dr Noor Sharoja Sapiei are from the Faculty of Business and Economics, Universiti Malaya and may be reached at noorsharoja@um.edu.my 

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.