EUROPEAN governments are considering imposing a 鈥渂it tax鈥� on every piece
of information sent over the Internet. Their aim is to claw back the revenues
they are losing as society goes online.
The recommendation originates in a report for the European Commission by a
group of experts looking at the economic and social consequences of a society
that makes increasingly heavy use of information networks. The First Reflections
report predicts that taxing the exchange of materials and goods will not be an
adequate way of raising revenue.
Rapid innovation in information technology and communications is already
distorting national inflation figures, the group says. In some countries, such
as the US, inflation is calculated by comparing prices with those of a base
year. But many goods and services now available have not been around long enough
to allow comparisons to be made. The panel鈥檚 claims are backed up by a recent
report from the US Senate, which found that inflation figures for the US were
overestimated by between 1 and 2 per cent. In Europe, where little or no account
is taken of technological change, the distortion could be even
greater.
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The tensions caused by cheaper communications are already being felt. In a
bid to protect its revenue, the German post office last month tried to ban
Citibank from sending credit-card statements, generated electronically in the
Netherlands, directly to the computers of German customers. The ban is currently
being tested in the courts.
鈥淎 larger and larger share of our production and economic activity is focused
on information and communication,鈥� says the chairman of the EC鈥檚 study group,
Luc Soete, who is an economics professor at the University of Limburg in the
Netherlands. 鈥淲e must make sure we have a national tax base which includes these
补肠迟颈惫颈迟颈别蝉.鈥�
For example, as information networks become more widespread, businesses could
become more dispersed, and teleworkers could be based offshore and so be exempt
from paying tax on income from their work. And Soete points out that when
businesses post documents to each other, they pay value-added tax, the amount
depending on the weight of the parcel. 鈥淏y sending it by electronic mail you pay
no VAT,鈥� he says.
The amount of information passing internationally over the networks is
already causing concern in Britain and France. 鈥淭here is a loophole with
international services,鈥� says a British Customs and Excise spokesman. 鈥淚t
depends on how you set up the company but it can be done so it avoids all VAT.鈥�
He says this can lead to an unfair advantage for companies operating from
outside the European Union: 鈥淭here is not a level playing field, and that is
what we want to sort out.鈥�
The problem of companies from outside the EU avoiding VAT is also worrying
European Internet connection companies. 鈥淚nternet and online service providers
based in the US do not have to charge European subscribers VAT,鈥� says Peter
Dawe, one of the founders of Pipex, a British-based Internet company. 鈥淯S
service providers have a 17.5 per cent price advantage.鈥�
But he does not think a bit tax is the answer. 鈥淚t is not feasible for us to
count the bits to charge by usage,鈥� Dawe says. 鈥淭hat is the reason we do not do
it at the moment.鈥�
According to Soete, however, a bit tax would eliminate the problem of
offshore tax havens. Firms could be taxed on the data they use no matter where
it comes from or is sent to.
