Cybertax

Futures

Volumn 30, Issue 9, 1998, Pages 853-871

  Soete, Luc ^a   Ter Weel, Bas ^a  

^a UNU MERIT   (Netherlands)

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EID: 0344443975     PISSN: 00163287     EISSN: None     Source Type: Journal    
DOI: 10.1016/s0016-3287(98)00089-5     Document Type: Article

References (42)

1. See, for example, European Commission, Advanced Communications for Cohesion and Regional Development, Accorde, Final Report, DG XIII, Commission of the European Communities, Brussels, 1995, on the development and adjustment of workers, firms and governments towards the IS.
2. Freeman, C. and Soete, L., Work for All or Mass Unemployment?: Computerised Technical Change into the Twenty-First Century, Pinter, London, 1994, advocate for more and comprehensive education and improvement of the way to acquire knowledge.
3. See, for example, the European Centre for Work and Society, The Impact of Technological Change on Employment within the European Union between 1984 and 2025, European Parliament, Luxembourg, 14 February 1995, on how to cope with the implications of technological change in society.
4. Bandwidth has only increased from 56 kilobytes per second in the late eighties to 45 megabytes per second in 1996. In the near, future bandwidth is expected to increase to 1 gigabit per second.
5. See, for example, Stahl, D. O., A critical survey of Internet pricing proposals. In The Economics of the Information Society, ed. A. Dumort and J. Dryden, EUR 16676 EN, European Commission/OECD, 1997, Brussels/Paris, pp. 142-154, for a critical survey on Internet pricing proposals. He argues that since most of the costs are sunk into infrastructure, the marginal cost of Internet data transport are essentially zero, so if Internet resources were private goods prices should be zero. In addition, Internet resources are public goods and consequently congestion is a potential negative externality. Marginal-cost pricing of public goods can lead to a so-called tragedy of the commons in which the common resource is over utilised, causing avoidable losses for society as a whole. He discusses the dynamic optimal pricing model, the smart-market approach to congestion pricing, the voluntary user declaration model and the connectiononly and flat-rate pricing proposal.
6. In a conversation Ter Weel had at Inland Revenue with Mr Holden and Miss Clare, it became clear that a change in the tax system would have serious consequences on government. The only change Inland Revenue predicts is a shift towards environmental taxation. However, a new 'tax-cow', such as information, is out of the question. In addition, Inland Revenue is satisfied with the current tax system. According to Holden and Clare, the tax leakages are minimised and a new tax does not necessarily improve the system.
7. The High Level Expert Group, Building the European Information Society for Us All, Final Policy Report of the High-level Expert Group, Employment and Social Affairs, European Commission, 1997, recommends 'a reassessment of the indicators used for economic policy-making purposes is urgently needed. At a time when both policy-makers and markets appear to rely more and more on such apparently 'objective' economic performance measures, there are tough questions to be asked concerning the bias implicit in the reliance on material production in constructing such measurements. There must be an attempt to produce a more accurate measurement of 'real' inflation and 'real' output growth, taking fuller account of ICT-based quality improvements, as well as the rapidly growing number of information products and services' (p. 31).
8. Soete, L. and Kamp, K., The bit tax: the case for further research, Science and Public Policy 23(6) (1996), 353-360;
9. Soete, L. and Kamp, K., The Bit Tax: Taxing Value in the Emerging Information Society, MERIT RM 2/96-019, MERIT, Maastricht, 1997.
10. Other arguments opposing taxing electronic commerce in general and taxing bits in particular are: 1. A transmission tax is in no way related to the economic value of the good. A videoclip sent to a friend with no commercial value but containing a large number of 'bits' would incur a much higher tax bill than a commercial database made up of fewer bits. The videoclip has no commercial value, if sent via normal mail the videoclip would hardly be taxed at all, while the database would be largely under-taxed by a bit tax. 2. No such tax exists for other methods of information transfer and so why would there be any on this one? 3. It is a tax on freedom of speech. It penalises the private user as much as the commercial user, with no differentiation tax-wise between them. 4. It could discourage the development and usage of the Internet, resulting in economic inefficiencies. It could give rise to peculiar incentives, e.g. artificially compressing data or maintaining it in analogue form, so as to avoid paying a tax based on bits or bit count. Another economic distortion could be that companies 'build' intra-nets to avoid Internet taxes. 5. The Internet is 'environmentally friendly' in that it reduces the use of paper and other media that incur higher environmental costs. A bit tax might discourage Internet usage and thus have negative environmental consequences. 6. It may be difficult to implement, i.e. bits are difficult to count within statistically shared networks and could be hidden by encryption. 7. If not implemented on a world-wide scale it could lead to distortions in competitiveness. Otherwise, online transactions may simply be deferred to a jurisdiction where no such tax exists.
11. We use the number of CD-ROM players as an indicator for the number of modems, since there are no figures available with respect to the number of modems in the EU. We assume that the number of CDROM players is equal to the number of modems.
12. See Elsevier, Moet lk Nu Echt Digitaal? 31(2) (1997), August.
13. Philips, for example, was never able to convince people that they had to buy their CD-I player. In addition, the DAT recorder and the HDTV were a flop too.
14. See, for example, High Level Expert Group, 1997, pp. 22-25.
15. The number of Internet purchases is still low because people do not think it is safe to buy products online. They are afraid that hackers can trace their credit card numbers and abuse this information. On British television an IBM commercial is broadcast which guarantees the safety of an individual's Internet transaction.
16. See, for example, Australian Tax Office, Tax and the Internet, Discussion Report of the ATO Electronic Commerce Project, 1997, for a justification of the values we take for the volume of sales and the amount of money involved.
17. http://www.ORA.com
18. http://www.ACTIVMEDIA.com
19. The Economist, 31 May 1997, argues that '[t]hose who advocate harmonisation say that the alternative is a 'race to the bottom', as governments sacrifice social spending on the altar of competitiveness' (p. 11 ).
20. In this paper we are not concerned about the exact definition of high-, medium- and low-skilled labour. For a superb analysis of different types and levels of skills see, for example, Muysken, J. and Ter Weel, B., Does overeducation reduce unemployment? Mimeo, Maastricht University.
21. See The Economist, 31 May 1997, and
22. Soete, L. and Kamp, K., The Bit Tax: Taxing Value in the Emerging Information Society, MERIT RM 2/96-019, MERIT, Maastricht, 1997;
23. Soete, L. and Kamp, K., Taxing consumption in the electronic age, Intermedia 25(4) (1997), 19-22, for a similar line of argument.
24. The VAT rules for the taxation of services in general are contained in Article 9 of the EC Sixth Directive of 1977. These are known as the place of 'Supply of services' rules. The general rule of service supply is based on the location of the supplier's business establishment, other fixed establishment from which the supply is made or place of residence. See, for example, Ganguly, R., Taxation of cyberspace transactions: working towards solutions, Paper presented at the 1997 Spring Symposium, Harvard Law School, for a good overview.
25. IBM's response to the bit tax proposal is available on the MERIT Homepage.
26. See, US Department of the Treasury; Office of Tax Policy, Selected Tax Policy Implications of Global Electronic Commerce, November, 1996.
27. IBM believes that such a tax proposal is long on social theory and short on practical detail. No clear plan of implementation has emerged, leaving many questions unanswered. Specifically, IBM argues that most countries have an embedded tax or universal service charge already included in the structure of their telecommunications tariffs. In addition, data transmissions over the public switched network are already subject to a wide variety of telecommunications taxes. Therefore, a tax on electronic commerce would be additive. Also, most data are in private networks - analogous to private intercom systems. IBM points out that taxes generally follow revenue flows where accounting systems already exist. Accordingly, an electronic commerce tax regime would require the creation of an accounting system with, in their view, no underlying revenue or economic justification. Finally, creating a new tax system to monitor the tax collection in a global network of networks, the keystone of which is the free flow of information and where the use of proxies and filters can be used to easily reroute information flows, would require the diversion of a vast amount of development effort from areas now creating enormous economic and educational value to users to an activity which has no underlying economic or business value.
28. The European Commission also opposes a tax on electronic commerce. First and foremost they argue that such a tax constitutes a radical departure from value based taxation and as such would lead to a substantial distortion of production and consumption decisions and to inefficiency. Similar to IBM's argument, the Commission states that the tax is not practicable in terms of measurement and implementation, that it is incentive-incompatible and would encourage avoidance. Finally, the Commission argues that a tax on electronic commerce would severely distort consumption choices on low priced or flat rate priced purchases.
29. For other arguments against the taxation of electronic commerce see, for example, Beck, H. and Prinz, A., Should all the world be taxed? Taxation and the Internet, Intereconomics, 1997;
30. Blum, D. C., State and local taxing authorities: taking more than their fair share of the electronic information age, The John Marshall Journal of Computer and Information Law 3 (1996), 493-522;
31. Du Bois, M., Down on the levy: next time your PC crashes, take it as tax deduction, Convergence, 1996;
32. Gleckman, J., The tax cometh to Cyberspace, governments want a piece of pie. But what will work? Business Week, 1996, 9 December, 44-45;
33. and Schneideran, Three myths about government, markets and the net: a special report on the Clinton administration's plan for global electronic commerce, ENODE 2(4) (1997).
34. On the other hand, tax revenues could be used to improve Internet access and usage. Taxes on car usage are used to maintain and build roads. In a similar fashion, electronic commerce taxes can be used to improve access and increase bandwidth. Particularly, in the EU, the improvement of the Internet is highly preferable. Critics of the fair distribution of taxes might argue that not all car taxes are used to maintain and improve roads. By the same token, they argue that taxes on electronic commerce just enter the large tax container and are not used to improve the use of and access to the Internet. This neglects the fact that governments undoubtedly play an essential role in safeguarding competition in the IS and in regulating the market to give every single inhabitant the opportunity to enter the IS. In addition, if we face an eroding tax base, governments have to search for other means to guarantee their revenues. As such, a tax on electronic commerce could turn out to be a useful tool in redistributing income and giving people a ticket to enter a new age. In addition, such a tax can provide the economy with extra needed bandwidth and the development of the Internet.
35. See, for example, Meijers, H., Information Society: New Ways of Work, Final Report to the Statistical Office of the European Communities, MERIT, Maastricht for a first explorative study on the consequences of the IS.
36. Currently, Dutch banks are forced to report unusual transactions to an authority for investigation. However, banks do not like to know 'too much' about their customers.
37. For a discussion of the Tobin tax we refer to Eichengreen, B., Tobin, J. and Wyplosz, C., Two cases of sand in the wheels of international finance, The Economic Journal 105(1) (1995), 162-172;
38. Van Liederkerke, L., The Tobin Tax: A Tool for Monetary Reform and Distributive Justice. Centrum voor Ethiek, UFSIA, 1997.
39. Frankel, J. A., How Well Do Foreign Exchange Markets Function: Might a Tobin Tax Help? NBER Working Paper Series, no. 5422, 1996, NBER, Cambridge, MA, argues that a Tobin tax has been advocated for at least three different purposes: 1. As a tool for monetary reform to restore some form of monetary autonomy for national governments; 2. To reduce excess volatility in capital markets by shifting resources away from speculators to long term investors; 3. As a market conform instrument to raise revenue for international projects or organisations.
40. These last two options are taken from ATO (1997).
41. Cordell, A. J. and Ide, J., The New Wealth of Nations, Taxing Cyberspace, Between the Line Publishers, 1994.
42. Cordell, A. J., International tax program and the society for law and tax policy. Paper presented at the 1997 Spring Symposium, Harvard Law School.