Friday, May 18, 2007


Cyber commerce poses a taxing question

Cyber-shopping is becoming more popular thanks, in part, to the fact that often you don't have to pay sales tax or import duty.

In North America, tax law varies from state to state but a bill is now going through the US Congress to encourage commerce by making all Internet business tax-free.

Governments in the industrial world are realising that the Internet has become an increasingly important part of business life. Around 82 million computers are linked to the Net worldwide and in the future you will be able to buy anything from movies to mortgages online.

However, these apparently innocuous developments could have enormous and explosive consequences for the nation state as we know it.

JJ Rosen, founder of Music Boulevard a New York retailer that sells CDs on the Net, is delighted with his company's success. "We launched the service a couple of years ago and our sales volume has increased well over 1000%" he says.

"Over the last year we've seen commerce on the Internet become much more accepted and commonplace," he adds.

One of the big advantages of buying CDs on the Internet is that often there is no sales tax to pay.

Authorities in Massachusetts have found it impossible to tax Internet business transactions. When they did try, businesses lost out to competitors in neighbouring New York State - which does not impose sales taxed - and went under or moved away.

David Skinner runs a Boston company running Internet services for a magazine, a wine merchant and providers of "adult services". He was one of many who found they could no longer compete with rivals based in New York.

"The advanced Internet services, online commerce and so forth, can be done from anywhere. So we did think about moving, probably to warmer climes," he says.

Boston was one of the birthplaces of modern computing in the USA, but high taxes in the 1970s drove business away, mostly to the West Coast.

Ed Crooks reports from the USA on the threat to traditional government (4'09")
State Senator Warren Tolman explains why the authorities decided to get it right this time and abolish the tax on Internet services. "You can't just tax because you think you can get a quick hit of a few million bucks or a few hundred million dollars," he says.

"Because eventually that catches up with you and you pay the consequences and we don't want to see that. We don't want to tax for the sake of taxing."

And if that means less revenue for the state government, Harold Hubschman who pushed through the abolition, says they will just have to live with it.

"In the private sector, we have become a lot more productive. We should be able to realise the same productivity gains in the government sector as well, which means we should be able to deliver more government services for less tax dollars," he says.

Global fears for the demise of tax revenues

Collecting tax is a growing global problem. More and more of what we buy comes from overseas without passing through border or customs controls.

The Organisation for Economic Co-operation and Development is already looking at ways of preventing countries reducing taxes to attract business.

The OECD deputy secretary-general, Joanne Shelton, explains: "Low taxes by themselves are by no means something we should be concerned about if the tax rates are sufficient to provide the social services and the public services that citizens in that country desire.

"But to the extent that they are trying to take away essentially mobile taxes from other countries, I think it does raise legitimate concerns about fairness in tax policies across countries."

The science fiction writer Neil Stephenson has written about an age when people will be able to choose between a range of different government systems.

It may not come to that but the growing impossibility of raising taxes means that national governments as we know them in the 20th century may no longer exist by the end of the 21st.

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