The sharing economy – the growing segment of industry that includes enterprises like Uber and Airbnb – poses sweeping challenges to governments grappling with unprecedented taxation issues, according to an expert in the Center for Public Finance at Rice University’s Baker Institute for Public Policy.
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Joyce Beebe, a fellow in public finance, outlined her insights in a new report, “How Should We Tax the Sharing Economy?” The report reviews and analyzes key federal tax considerations for companies and workers in this expanding sector of the economy and offers recommendations for the future.
“Although the sharing economy could potentially lead to higher tax revenues for governments, it also reinforces the well-known challenges of taxing large numbers of small taxpayers,” Beebe wrote. “Taxes under this model are more difficult to collect, more distortionary (because compliance costs consume a larger portion of revenue earned), and generate only modest revenue gains from small businesses. Some analysts also caution that while digitalization makes transactions more traceable, if tax compliance does not improve as overall economic activities grow due to the sharing economy, the portion of the informal economy in relation to the total economy will increase.”
One problem is there is no clear understanding of what the sharing economy encompasses, Beebe said. All definitions include the typical ride-hailing and home-sharing websites like Uber and Airbnb, but there are questions about whether the industry includes two other types of business models: peer-to-peer sales (like Etsy) and platform ownership of assets (like Zipcar). Many research studies use the term “sharing economy” interchangeably with gig economy, peer economy, collaborative economy, on-demand economy, matching economy, access economy or platform economy, she said.
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The sharing economy includes many more users and consumers than workers and suppliers, Beebe said. A PwC survey indicated that about 20 percent of the U.S. population …