Governments tempted by data tax revenue

Date: 16/01/1997

EUROPEAN Commission directorates-general are still examining the possibility of taxing data sent via modems or the Internet, despite howls of protest from information technology companies.

Industry and Telecommunications Commissioner Martin Bangemann has confirmed that the issue is still live, even though the case for a 'bit tax' has come under fresh attack from his own experts.

The idea of such a duty was rejected by one of three expert groups called on by Bangemann to investigate the best regulatory framework for the information society, at a meeting in Potsdam, Germany, last week. His Directorate-General for telecommunications (DGXIII) is known to be highly sceptical about the idea.

However, some governments are still thought to be in favour of what would amount to a tax on the information society. Belgium has in the past been keen on this extra source of revenue, along with France.

Officials close to Bangemann underline that governments, especially those under pressure to cut large deficits, find any possible new source of revenue hard to resist.

But they have warned of internal market chaos if some governments go ahead with a tax while others do not. “The more you look at the idea, the more questions it raises,” said one, adding: “It is not clear who would be taxed the person who sends information, the one who receives it or the operator.”

The basic idea behind the levy is that it would help governments diversify and update their sources of revenue as independent home teleworking takes over from traditional, easy-to-tax, office or factory jobs.

Its supporters argue it could also be used to spread resources between the winners and losers of the information society.

A group of experts in the Commission's Directorate-General for social affairs (DGV) backed the concept last year in a report on the impact of the information technology revolution on society.

Last August, Maastricht University Pro-fessor Luc Soete, the chairman of the initial report group, issued a fresh document: The bit and tax. He suggested bit-tax revenues could be used to cut employers' social security costs in countries such as Belgium, the Netherlands, France, Germany and Italy, providing an incentive to job creation.

Supporters claim a relatively low bit tax could easily bring in around 8 billion ecu a year to a country such as Belgium. Its telecommunications ministry is studying ways of charging duty on data transmission in the future, although early taxation has been ruled out because it would damage a growing market.

Information technology and telecommunications companies have unanimously attacked the idea of a bit tax, according to Intel's Brussels-based EU affairs officer Monique Mèche, who added: “Technically it would be very complex. The costs of levying the tax could equal the amount raised.”

The UK-based Federation of Electronics Industry (FEI) has also described the idea as “seriously flawed”, claiming it could handicap European information technology firms in relation to their Japanese and US rivals.

The FEI warns that the levy could have a blunderbuss effect, hitting voice and images sent by modem and the Internet as new compression technologies increasingly allow these to be sent as easily as data.

At the same time, the introduction of new personal satellite communications systems would make it easier to avoid tax by simply shifting to this technology.