August 26, 1996, Electronics Engineering Times, Page 4 "Europe wary of bit tax" By Peter Clarke Maastrict, Netherlands Since it surfaced in a report prepared for the European Commission earlier this year (see April 29, page 1) the idea of a "bit tax" on data communications has received a mixed response in Europe. Feedback has ranged from calls for adoption and implementation from within the Belgian government, to a qualified rejection by one vice president of the European Commission (EC), to disjust and disbelief amonst individual Interenet users, particularly in Italy. The bit tax idea, only a very minor part of an interim report, has received a great deal of publicity from private individuals, who seem to be the most upset, fearing state interference as an attempt to tax freedom of speech. Luc Soete, director of the Maastrict Economics Research Institute on Innovation and Technology, has been heavily flamed via e-mail since the report's publication. As chairman of the so-called High Level Experts Group (HLEG) which authorited the report, it was he who included just one clause in about 100 pages of text, calling for an investigation of the taxing of data transmission over networks, and particularly over the internet. [JB: I can't resist adding a comment here. One of the most threatening aspects of this "bit tax" idea (even far more important than the value of the money paid) is the fact that it would make all ISP's and Internet users automatically subject to "tax evasion" charges which would just be a smokescreen for content investigation, and would automatically "justify" wiretaps where content-based investigation would be impossible. It is very likely that threatening an ISP with such charges would cause him to become more cooperative, and the difficulty in calculating and verifying the accuracy of the taxes paid would make everyone an inadvertent criminal, which would give the government enormous leverage it wouldn't otherwise have. The way I see it, anyone who values freedom who would otherwise support a bit-tax-type proposal should run into a brick wall with this problem, and join the opposition to it right here.] Speaking at a conference on telecommuting, the Belgian Minister for Telecommunications, Elio Di Ruppo, came out as a supporter of the bit tax. But the Flemish government, which is responsible for half of Belgium, claims a bit tax would undermine its efforts in promoting information technology within its territory. The report was prepared for DG-V, the department of the EC responsible for social affairs, but Martin Bangemann, the EC vice president who heads up DG-XIII and is responsible for information technology and telecommunications, has expressed concern over the impact of a bit tax. Issues include economic growth and roll out of next-generation information and communications technologies and how a bit tax could be implemented. The EC's official position on the bit tax is that it has no position. "This is only an interim report at the moment," said a spokesman for the DG-V. "The bit tax idea may not even be present in the final report." Not Possible? "The big problem is that it's a nice idea, but implementation may not be possible at the European level," the spokesman continued. It may have to be set at the world level. At the moment, we are waiting for the final report." Officials responses to the interim report, from government and industry bodies, have been generally favorable but often don't mention the bit tax, Soete said. "The bit tax responses have been much more individual. It just goes to show that people don't read reports, but they do read newspapers." Soete continued: "E-mail responses have been very offensive, very negative." Reluctant to give examples, Soete admitted that many e-mail messages had attacked him personally but that the gist was "keep your hands off the Internet." Those responses, as well as more cogent arguments put forward, have prompted Soete to publish a second paper, titled: "The bit tax: the case for further research." In this, Soete has recast the bit tax as a replacement for the value-added tax (VAT) on information-technology goods and services, rather than as an additional tax. "There was an issue of double taxation there, which it is hard to justify," he said. VAT is a European-wide system of taxation on consumption roughly equivalent to the US sales-tax system: It is typically set at 17.5 percent of the untaxed value. Soete argued that VAT is heavily based on ideas of material inputs at different states through a chain of manufacture and is not well-suited to "intangible" services. He pointed out that a telephone call is currently priced and taxed in relation to the distance and time. Instead, Soete proposes the bit or byte--rather than the second--as the fundamental unit of measure. Taxation on that basis might save small-scale users money while increasing the tax burden on large-scale users. "This is a new system of communications, and the assumption that we should be able to use it without any taxation is ridiculous," Soete said. As planned, the HLEG will rewrite its report in light of responses and further research by the end of 1996 before submitting it to DG-V, which is then expected to call for some of the particular recommendations to be investigated in 1997. [end of article] Jim Bell jimbell@pacifier.com