- A recent report from the US Congress’s Joint Committee on Taxation suggests that a tax on telephone calls, first introduced as a ‘luxury’ tax over one hundred years ago, should be extended to cover all telecommunications services including the Internet.
The three per cent levy currently applies to voice calls over fixed networks, but the growth of mobiles and net-based telephony using VOIP (voice over internet protocol) means that some phone service providers are not being taxed while others are, and there is concern about how to keep the market fair.
One solution would be to tax mobiles and VOIP like any other sort of phone call, but the committee has also suggested the more radical option of a general tax on telecommunications, with the advantage that it will cover any future technologies too instead of forcing the law to play catch-up every few years.
As you might expect, the idea has not gone down very well in the States, where the view that government might be a force for good in society and that it should be properly funded is seen by many as dangerous liberalism verging on communism.
And some people are already talking about ways to get around any such taxes – a post by ‘Keith J’ on CNet’s talkback forum argues that ‘smart people will always figure out ways to circumvent dumb governments’, and then goes on to outline ways to avoid having to pay any net use taxes.
Ten years ago – even five years ago – there was a good argument against taxing online activity since the technology was new, the users were few and any proposed regime would have distorted the net’s development in ways that were designed to get around the tax system rather than provide the best service to users.
But now, with over half the UK and US populations online, this argument simply does not hold.
It’s clear that the net is going to be the dominant communications infrastructure in the medium-term. It’s clear that packet-switched networks based around the TCP/IP model will eventually replace broadcast models used for existing TV and radio transmission.
And it’s clear that governments that prefer indirect taxation to income taxes will be looking for ways to generate revenue from our online activities just as they tax other parts of our lives like drinking, driving or going to the cinema.
In fact many of us already pay net taxes, even in the US. Some states, including Alabama and Florida, charge sales taxes on DSL broadband because it is treated as a telecommunications service, while in Wisconsin a law passed in 1991 imposes a five per cent sales tax on net access charges. The Wisconsin law was passed before the Internet Tax Freedom Act, a country-wide measure that forbids new net taxes.
Here in the UK and the rest of Europe VAT gets added to the monthly bills for broadband or dialup access. We also pay VAT on the goods we buy online just as we do when we go into shops - every tune you buy from the iTunes Music Store in Europe includes VAT in the price.
But the larger question is whether there could be a tax regime which is based on specific net usage rather than just a sales tax which we pay on top of subscription charges. The problem is that so much of what we do online is not charged for at the point of use, so there is no payment system in place to collect the tax – I don’t pay a penny for each email I sent or web page I view, and in the cases where I am paying for content it is already taxed like other purchases so adding an extra tax would be hard to justify.
There seems little good reason to add to the complexity of the net by building a system which would allow the government to tax me on the time I spend chatting to my friends online or using other parts of the net’s infrastructure, but nor is there any reason to exclude online purchases from taxation regimes which apply elsewhere.
There are two areas that might force the issue.
The first, as in the USA, is VOIP. Governments are used to getting a cut from phone companies’ call revenue, and they won’t like missing out as we all start using our computers and net connections instead. VAT won’t work if the service is provided for free, like Skype, but we could see an EU-wide duty imposed which means that you have to pay the government even if you’re not paying for the service.
The second even more contentious area could be online video.
Last week Ofcom’s chair, Lord Currie, looked forward to the regulatory challenges that will arise ‘when boundaries between TV and the internet truly blur’, but what about the TV licence?
At the moment you need a licence if you own a receiver, but why shouldn’t it instead depend on the ability to view full-screen video? In a year or two that will include most broadband subscribers, but just imagine the fuss if it was suggested that anyone who wants to stream BBC programmes should pay £121 a year?
These are just examples, but the wider point is that the net has reached a point where such forms of taxation can and should be considered.
I won’t like having to pay more, and we need to make sure that any proposals are carefully considered to ensure they do actually make sense, but as the internet becomes more embedded in daily life duties and taxes on what we do online seem inevitable.
