Of course electronic commerce should be taxed. There is no question of that. As other sales are taxed in the real world, why should e-commerce be treated any differently? It seems astonishing that a debate over Internet taxation is even taking place.
But it is. In the US last week, an Internet tax commission assembled to talk about whether Internet commerce should be subjected to the same rules as other means of doing business already are.
Taxes are the cost of capitalism, the price we pay to the state for providing a stable society in which to do business and make money. It would be grossly unfair to carry on taxing ordinary commercial transactions but exempt commerce carried out over the Internet, simply because it is a new medium.
The issue is not whether, but how Internet transactions should be taxed.
Something that has been holding back the US debate on this issue is its federal system of government. States and local governments can levy their own taxes, but if states decide unilaterally on whether to tax, rather than coordinating their decisions on a federal level, a conflict will arise. If one state taxes e-commerce and a neighbouring state does not, clearly companies could simply shift their operations over the border.
This would lead to tax wars breaking out across the country.
Europe faces the same problem. Internet taxation must be coordinated at a European Union level, rather than being open to individual states to try to outsmart their neighbours by setting up as Net tax havens.
The same problem arises between Europe and the US, and with other countries.
To stop companies simply locating their commerce sites in the Cayman Islands, or wherever, and claiming Internet tax exemption, an international coordination is required. However, the chances of such international cooperation succeeding, as recent terrible examples have demonstrated, are very very small.
This problem is one we already face, though. Companies can already set up holding companies in tax havens in order to try to avoid paying corporation and other taxes. The government is looking at closing the loopholes enabling that kind of avoidance, and could extend that closure to ensure that companies which effectively operate in the UK, even if they do their business over the Web, are subject to the same regulations as companies carrying out physical transactions here.
Most of the principles and mechanisms for taxing the Internet are really already in place. The difficulty seems to be in applying them to a medium that politicians are still afraid of.
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