April 27, 2000	atimes.com

Editorials Internet: Taxing issues The Organization for Economic Cooperation and Development is considering ways and means to tax the Internet and cross-border e-commerce. The effort to build a taxation consensus between the European Union, the United States, Japan and other OECD countries (and then presumably requiring eveyone else to fall in line) comes in response to worries that governments are losing out on huge flows of potential tax revenue from international Internet-based sales, as well as concerns about an unfair imbalance between taxation of traditional brick-and-mortar and Web businesses. Naturally, when it comes to dreaming up new ways of collecting taxes and building new bureaucracies at the expense of both ordinary folk and entrepreneurs, the EU and Brussels Eurocrats have taken the lead on this. Throwing in the issue of "fairness" presumably is to make the taxing ideas more palatable. Altogether, there are four Internet taxation proposals on the table, including requiring Web businesses to register with the tax authorities of all nations in which they record sales or putting the tax collection burden on financial institutions that process payments for e-commerce transactions. The major industrialized nations are expected to take up the issue of Internet taxation at the upcoming (June) Group of Eight summit in Okinawa. Hopefully, someone - perhaps the US which is dubious about such new tax notions - will put a stop to this nonsense before it spins out of control. What the Internet and e-commerce - both B2C and B2B - have done is to efficiently connect sellers and buyers, provide a wide range of product information to allow for more informed buying, and lower prices by effectively converting any sales transaction into a competitive auction. That the EU countries with their inefficient distribution and retail systems which are undermined by e-commerce want to find ways of putting a damper on all this rather than deregulating their markets, and that Japan, suffering from the same disease, appears ready to jump on to the taxation bandwagon, is hardly surprising. But these are efforts worth fighting and defeating at all cost. What's at stake is protecting the major productivity gains that the Internet and e-commerce have conferred and are increasingly conferring upon economies worldwide. There is no legitimate reason to tax cross-border e-commerce; it's merely another form of protectionism. Goods shipped cross-border are subject to customs charges, whether the sales contracts were reached on the Net or otherwise. The amount of those customs charges is subject to negotiations in the WTO. But taxing e-commerce beyond that would simply be a way of imposing sales taxes with no justification we can find - other than the EU and Japanese taxmen's greed. Sales taxes ranging anywhere from 5 to over 20 percent exist in Japan, in the EU countries and in some American states. Well, that's those countries' and states' business and the business of their citizens who are prepared to tolerate such impositions. Let them do as they please and reduce their competitiveness and productivity to their hearts' desire. But the idea of some form of international sales tax is just a bit too much to swallow. So, here is our recommendation: Let the EU, Japan, and any other country that wants to follow suit institute whatever new tax regimes and humongous tax collection agencies they see fit. But let the US and American financial institutions refuse to follow down that garden path and make an effort to convince other nations to join the tax rejection front. It'll become clear soon enough whose policies are economically more advantageous.

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