The rapid growth of e-commerce, especially the sale of goods and services over the Internet, has fueled a debate about the taxation regimes to be used. The shift from a physically–oriented commercial environment to a knowledge- based electronic environment poses serious and substantial issues in relation to taxation and taxation regimes. Tax administrations throughout the world face the formidable task of protecting their revenue base without hindering either the development of new technologies or the involvement of the business community in the evolving and growing e-market place. Concerns, for governments, centre on the impact of e-commerce on the state and local revenue. Whereas states can impose a tax on residents’ purchases from out-of-state vendors, they cannot impose an obligation on those vendors to collect the tax unless the vendor has a substantial presence, or nexus, in the state. The problems for developing countries we believe are greater. The shrinking of the tax base will have a disproportionate effect and further jeopardise the already fragile economy of the developing world.