European governments are mulling over the possibility of introducing a ‘bit tax’ on every piece of information sent across the Internet. The proposal, reported by New Scientist magazine, comes as part of a study of the economic and social effects of information networks. As a conclusion of the study, the panel of experts recommends that governments use the bit tax as a method of recouping a proportion of the industrial revenues lost as a result of the world’s unstoppable transition to an on-line society. Currently, economists consider the impact of the Internet to be a part of the standard model, dealing with transactions based on the sale and exchange of hardware and software. But the First Reflections report to the European Commission predicts that taxing materials and goods relating to the Internet will not be sufficient to balance the lost revenues of international commerce and services directly in the firing line, such as telecommunications and postage. The claims are backed up by a recent report from the US Senate which discovered that inflation figures were overestimated by up to 2%. Fast- moving innovation in information technology and communications is already distorting governments’ figures. Most economists calculate national inflation figures by comparing the current year with a base year. But in many cases, industries exist now that were not even dreamed of in the base year, distorting the figures and preventing accurate comparisons. In Europe, where little or no account of technological change is registered, the effect is certain to be even higher. A larger and larger share of our production and economic activity is focused on information and communication, economics professor at the University of Limburg in the Netherlands and chairman of the study group, Luc Soete, told the magazine. We must make sure we have a national tax base which includes these activities. Soete has drawn the European Commission’s attention to the discrepancies between postage and electronic mail. Companies using the postage system are charged some form of value-added tax based on the weight of the package. No such restrictions or liability affect electronic mail. By introducing a size-related tax to electronic data, this issue could be addressed, he said. International discrepancies are also hitting Europe. Companies based outside the European Community are under no obligation to charge their customers value-added tax and so have a 17.5% advantage over their European counterparts – a problem that has particularly hit Internet providers in Europe. As Peter Dawe, managing director and founder of the Unipalm Pipex Plc Internet service puts it: before the companies even start trading, US service providers have a 17.5% price advantage. While Internet providers are cautious about charging per-bit rates (not least because counting bits could easily slow up a service that is under pressure already), Soete believes it is the only solution for governments who want to eliminate the off-shore tax problem. Firms would be taxed on the data they use, no matter where it comes from.
