Ending the Internet's tax-free status: how about a byte tax

James Ensor asks whether the Tobin Tax on international financial transactions might fund Third World development and inhibit currency speculation. What about visions of a Tobin-style tax on internet traffic: the byte tax?

Last year the number of email messages probably overtook the number of letters carried by national postal services, with an estimated 500 billion messages going to between 475 million and 891 email addresses. (In the US the average user is claimed to have three email addresses, and up to 20 per cent of the messages may be junk mail.) The global online population is estimated to be upwards of 300 million and still growing. More than 50 per cent of households in some countries are online.

Overall Internet traffic also continues to grow. Globally, users are going online more frequently and staying online longer. Intensive users in advanced economies – particularly those fortunate enough to have broadband access – appear to be accessing more digital content.

Proposals for a national or international tax on internet traffic are thus unsurprising, although they have usually been distinguished by more conviction than intellectual rigour. They have been reflected in recurrent online hoaxes about an Australian, US or UN email tax – typically five cents per message, with claims that the revenue would feed starving Africans – or merely your starving post office.

A 1994 report by Arthur Cordell for the Club of Rome suggested "a turnover tax on interactive digital traffic" at a rate of around 1 cent per megabit. Two years later the report by the European High Level Expert Group on the Social Aspects of the Information Society (Soete Report) warned that cross-border electronic commerce would erode traditional tax regimes. What better way to supplement VAT than to get internet service providers to collect a fraction of a cent for every email or every digit, a sort of petrol tax for users of the information highway?

The 1995 D'Orville and Najman report for the UN on the Tobin Tax had meanwhile claimed that a 0.1 per cent levy on international capital flows might bring in US$56.4 billion a year, sufficient for new global tax collection agencies and quite a few good works. EU, WTO and OECD responses were at best underwhelming. In 1999, as the dot com bubble started to evaporate, the Globalization With A Human Face report (Raworth Report) for the UN Development Programme offered a more adventurous proposal.

Raworth claimed that a global tax of between one and five cents per hundred email messages would have generated US$70 billion for the UN in 1996, giving that organisation an independent revenue base. It would supposedly be consistent with EU 'information taxes' on media such as tapes or disks and devices such personal computers, designed to benefit the performers and artists who are the "silent victims of the high-tech gift economy".

In 1998 the figure for Belgium alone would supposedly have been US$10 billion, enough to build a high school in every African city and enable a dictator or two to retire to Switzerland with a box of chocolates and the customary crate of gold bars. And why stop there, given increasing consumer use of broadband networks to access video and other 'rich media'. Raworth noted suggestions for a 'digital tariff' on all transmissions, taxing by the byte rather than by the message. Viewing one video online, for example, might be equivalent to a year's email. Some commentators even suggested extending the tax to all telephone calls.

The report was essentially ignored by what Paulina Borsook and Richard Barbrook have characterised as the 'cyberselfish', quick to oppose any government regulation of the Internet, fond of jingles that we can become citizens of cyberspace but alas slow to address concerns about its digital divides. Freedom online, it seems, is freedom from the FBI but not from hunger.

Other responses were more pointed, querying Raworth's figures and collection mechanisms.

In principle there seems little reason to regard the Internet as sacrosanct, one network that is necessarily free of taxation. As with the Tobin Tax on capital flows, there are no insuperable technical impediments to taxing information flows on a national or global basis. However, there are real questions about political will.

Despite pious hopes, it is unlikely that any national government will allow the UN to tax its citizens or that taxes, like books, will be destroyed by the Web. Claims that the Internet dissolves national sovereignty have yet to be substantiated. The People's Republic of Cyberspace has not opened an embassy in Canberra. Information may want to be free but most of us live on terra firma and remain subject to the ATO or its equivalent.

Popular support for a national tax on behalf of the UN is also doubtful. International aid amounts to less than 0.3 per cent of the budget of many donor countries. Australian governments spend more each year on fireworks than on assistance for some Pacific neighbours. Taxing bits rather than bolts and burgers won't change decisions about aid priorities. As Jeffrey Frankel comments in his 1996 critique of Tobin, "popular conceptions envision large do-nothing bureaucracies whose major function is to provide sinecures for favoured nationals from member countries".

If a byte tax is introduced in Australia it is likely to be the equivalent of Financial Institutions Duty or other traditional taxes that disappear straight into Consolidated Revenue and thence, with luck, percolate offshore as part of a government aid program. For the moment it remains a plaything for economics graduates, a bad dream for the internet industry.