Bit tax again?

[jim bell <jimbell@pacifier.com>]

I hesitate to write about this, but the old "bit tax" idea has surfaced 
again, this time reported in Electronic Engineering Times, page 1, April 29, 
1996 issue.   I include the article below.  My comments will follow in 
another note shortly!


Europe:  Try to send it, we'll tax your bits

By Peter Clarke

Brussels, Belgium-- A report prepared for the European Commission (EC) urges 
it to consider levying a "bit tax" on information sent over the Internet and 
other networks.  The recommendation runs counter to the reining sentiment 
among U.S. regulators, who have sought to avoid being cast as "bit cops."

The EC report reasons that the value of the average cyberspace transaction 
will increase as time goes by, resulting in fewer physical transactions.  
The upshot, the report says, will be a shrinking government tax base.  
Evidence of such a trend may already have surfaced:  Use fo the Internet to 
import goods and services electronically from outside the continent has 
allowed some Europeans to avoid payments under Europe's value-added-tax 
(VAT) system.

Luc Soete--director of the Maastricht Economic Research Institute on 
Innovation and Technology (Limburg, Netherlands) and chairman of the high 
Level Expert Group (HLEG) that prepared the report on the social aspects of 
the information society--has examples at the read to prove the potential of 
Internet commerce to erode the tax base.  Soete observed last week that 
sending his group's report by mail or courier, rather than electronically, 
would involve taxes on fuel purchases and on the profits fo the companies 
involved in physically shuttling the document to recipients.  

"As society moves toward the information society, tax revenue needs to shift 
emphasis from material goods to virtual goods and services," he said.  I 
think we will see a very rapid introduction [of such a tax structure] in one 
or two years' time."

Soete said he believes the tax "can be introduced in a very straightforward 
way.  Every telephone operator and service provider has a record of the 
bytes moved.  They can be the tax collectors."

He acknowledged the prevailing "negative view about a bit tax" and 
attributed it in part of "concern that it could inhibit adoption of 
information technology.   But once people have the technology, not many 
would go back.  Whether the tax is 1 cent per bit or 1 cent per kbit is, of 
course, completely open."

At the same time, U.S. regulators, who hope to expand Internet access to 
schools, libraries and low-income individuals, have resisted efforts to cast 
them in the role of bit cops charged with monitoring Internet traffic.

Free Internet

The Federal Communications Commission, which has conducted a series of 
highly profitable spectrum auctions for wireless and satellite services, 
last week proposed reserving some wireless spectrum for free Internet access 
for schools and libraries.

Soete last week cast the bit tax as a progressive levy that would fall 
hardest on big business and that would not deter private individuals from 
joining the information society.  Indeed, the potential of the information 
revolution to further polarize society is among the concerns expressed in 
the report.

Soete believes the bit-tax should be used to fund social security or 
welfare.  "Labor can no longer be the source of revenue for social 
security," he said.

Steve Kennedy, business-development manager at the Internet service provider 
Demon Internet Ltd. (London) doesn't share Soete's positive view of the bit 
tax.  "Such a tax would be very difficult to monitor and police," Kennedy 
asserted.  "We transfer about 1.5 Gbytes of data a day, but we don't keep a 
lot of customer information.  Who's going to pay for the equipment and 
software to log all this?"

He added that if his company was "simply taxed on the data transfer, we 
would have to pass it on to the customers, and that would penalize the small 
user."

The HLEG report is lavelled as an interim document that is intended to 
generate public comment.  The final report will be published by year's end.  

The interim report can be accessed from http://www.ispo.cec.be/hleg/hleg.htmlJim Bell
jimbell@pacifier.com