Governments worldwide are far from reaching consensus on how to tax online business, despite growing concern that substantial tax revenues might be lost in the borderless Internet world. Increasing pressure is falling on governments, particularly those relying heavily on sales-tax revenues, to revamp their tax policies to stem the loss of revenue. Tax evasion via online purchases has become a sensitive issue. On the one hand many governments want to encourage e-commerce by exempting online transactions from taxes, but on the other their revenue base is threatened. At an electronic commerce forum last week at the ITU Telecom Asia conference, Pacific Century CyberWorks deputy chairman Alex Arena said companies would be tempted to move their business to territories where e-commerce was not taxed. He said that if governments imposed taxes on e-commerce, the economy may suffer damages as businesses moved to other tax-friendly jurisdictions. The issue will probably become more serious as the importance of services in the economy grows. Services are harder to track than the trading of physical goods. It has caused heated debate in the United States, where a large proportion of the world's e-commerce is conducted. In California, governor Gray Davis vetoed a bill requiring retail stores to collect sales tax for goods sold online. It is not known whether the US Federal Government will tax e-commerce after the moratorium on new Internet taxes expires next year. Government representatives at the forum - from both Hong Kong and the US - would not discuss their stance on the issue. 'It is too early [for us] to respond,' said Gregory Rohde, assistant secretary for communications and information with the US industry watchdog, the National Telecommunications and Information Administration. 'We need to wrestle with this a lot more. It takes time for all tax jurisdictions to work together.' Alan Siu, deputy secretary of Hong Kong's Information Technology and Broadcasting Bureau, said: 'There has been no international consensus on how to deal with taxation on e-commerce.' The issue has been under discussion at the Organisation for Economic Co-operation and Development (OECD) for two years. A global consensus is required to make any policy work as one country's policy has implications for other countries. Mr Siu said one agreement in principle that had come out of the discussions was that governments should not tax e-commerce more favourably than traditional business. This was an attempt to discourage governments from imposing 'beggar thy neighbours' taxation policies aimed at attracting e-businesses from abroad. The next OECD meeting on the issue will be held in the United Arab Emirates next month. 'As e-commerce is only beginning to take off and its impact on tax revenues is very small at the moment, we can afford the time to first look at how other countries will handle the issue,' Mr Siu said. Lusan Hung, partner at the local branch of international accountancy Grant Thornton, said the main difficulty was how to define where a transaction had taken place and which jurisdiction's taxes were applicable in the borderless Internet world.