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"Bit Tax" article in EET

August 26, 1996, Electronics Engineering Times, Page 4

"Europe wary of bit tax"

By Peter Clarke

Maastrict, Netherlands

Since it surfaced in a report prepared for the European Commission earlier 
this year (see April 29, page 1) the idea of a "bit tax" on data 
communications has received a mixed response in Europe.  Feedback has ranged 
from calls for adoption and implementation from within the Belgian 
government, to a qualified rejection by one vice president of the European 
Commission (EC), to disjust and disbelief amonst individual Interenet users, 
particularly in Italy.

The bit tax idea, only a very minor part of an interim report, has received 
a great deal of publicity from private individuals, who seem to be the most 
upset, fearing state interference as an attempt to tax freedom of speech.  
Luc Soete, director of the Maastrict Economics Research Institute on 
Innovation and Technology, has been heavily flamed via e-mail since the 
report's publication.  As chairman of the so-called High Level Experts Group 
(HLEG) which authorited the report, it was he who included just one clause 
in about 100 pages of text, calling for an investigation of the taxing of 
data transmission over networks, and particularly over the internet.

[JB:  I can't resist adding a comment here.  One of the most threatening 
aspects of this "bit tax" idea (even far more important than the value of 
the money paid) is the fact that it would make all ISP's and Internet users 
automatically subject to "tax evasion" charges which would just be a 
smokescreen for content investigation, and would automatically "justify" 
wiretaps where content-based investigation would be impossible.  It is very 
likely that threatening an ISP with such charges would cause him to become 
more cooperative, and the difficulty in calculating and verifying the 
accuracy of the taxes paid would make everyone an inadvertent criminal, 
which would give the government enormous leverage it wouldn't otherwise 
have.  The way I see it, anyone who values freedom who would otherwise 
support a bit-tax-type proposal should run into a brick wall with this 
problem, and join the opposition to it right here.]

Speaking at a conference on telecommuting, the Belgian Minister for 
Telecommunications, Elio Di Ruppo, came out as a supporter of the bit tax.  
But the Flemish government, which is responsible for half of Belgium, claims 
a bit tax would undermine its efforts in promoting information technology 
within its territory.

The report was prepared for DG-V, the department of the EC responsible for 
social affairs, but Martin Bangemann, the EC vice president who heads up 
DG-XIII and is responsible for information technology and 
telecommunications, has expressed concern over the impact of a bit tax.  
Issues include economic growth and roll out of next-generation information 
and communications technologies and how a bit tax could be implemented.  
The EC's official position on the bit tax is that it has no position.  "This 
is only an interim report at the moment," said a spokesman for the DG-V.  
"The bit tax idea may not even be present in the final report."

Not Possible?

"The big problem is that it's a nice idea, but implementation may not be 
possible at the European level," the spokesman continued.  It may have to be 
set at the world level.  At the moment, we are waiting for the final report."

Officials responses to the interim report, from government and industry 
bodies, have been generally favorable but often don't mention the bit tax, 
Soete said.  "The bit tax responses have been much more individual.  It just 
goes to show that people don't read reports, but they do read newspapers."

Soete continued: "E-mail responses have been very offensive, very negative." 
 Reluctant to give examples, Soete admitted that many e-mail messages had 
attacked him personally but that the gist was "keep your hands off the 

Those responses, as well as more cogent arguments put forward, have prompted 
Soete to publish a second paper, titled: "The bit tax:  the case for further 
research."  In this, Soete has recast the bit tax as a replacement for the 
value-added tax (VAT) on information-technology goods and services, rather 
than as an additional tax.  "There was an issue of double taxation there, 
which it is hard to justify," he said.

VAT is a European-wide system of taxation on consumption roughly equivalent 
to the US sales-tax system:  It is typically set at 17.5 percent of the 
untaxed value.   Soete argued that VAT is heavily based on ideas of material 
inputs at different states through a chain of manufacture and is not 
well-suited to "intangible" services.

He pointed out that a telephone call is currently priced and taxed in 
relation to the distance and time.  Instead, Soete proposes the bit or 
byte--rather than the second--as the fundamental unit of measure.  Taxation 
on that basis might save small-scale users money while increasing the tax 
burden on large-scale users.

"This is a new system of communications, and the assumption that we should 
be able to use it without any taxation is ridiculous," Soete said.

As planned, the HLEG will rewrite its report in light of responses and 
further research by the end of 1996 before submitting it to DG-V, which is 
then expected to call for some of the particular recommendations to be 
investigated in 1997.

[end of article]

Jim Bell
[email protected]