Abstract:
The Global economy has seen a rapid growth in digital business transactions, especially in the
provision and sale of goods and services through the application of information and communications
technology. This rapid growth can be attributed to the fast rate of technological advancement which
has changed how business transactions are conducted globally. The complexity associated with the
taxation of digital business transaction has created the need to take a critical look at the challenges
and prospects of digital business transactions in developing economies. The absence of physically
commercial environment to a digital business environment generates thoughtful and significant issues
in relation to taxation and taxation systems. This study relied on the second-best Tax Theory to
establish that developing economies face the daunting task of taxing digital business transactions
effectively due to the distortive nature of taxes on welfare losses. Whereas government and revenue
collection authorities can impose tax on individuals, institutions and or products, they cannot tax
digital business transactions efficiently and effectively and unless there are robust and effective tax
systems in place. Even though these constraints appear more pronounced in developing economies, the
implementation of effective tax could lead to an enhanced internal tax revenue for development.
