The barriers to an international policy on Net taxation are all surmountable with technology, and only tax authorities' "fear of change" is holding back agreement.
This was the view of Ira Magaziner, US government adviser on the Internet, speaking at a press conference in Brussels yesterday. He also admitted that US policy on exporting encryption products was inconsistent with its hands-off stance on Internet tax and privacy.
These will be the main topics of a white paper on the future of ecommerce and governance of the Net, expected to be published by the US government this week. The plans will include detailed proposals on taxation and privacy and will outline a decentralised 'stakeholder' approach to regulating ecommerce.
"We do not think that governments are the best people to regulate electronic commerce, in fact we think it is probably impossible to regulate it," he said.
"We share the same concerns as other governments about privacy, we think it is a fundamental right. But where we do have some disagreements is how to enforce that right, and other countries are taking a more government oriented approach," he added.
The US paper will call for an industry led code of conduct, which will follow internationally agreed OECD guidelines on notice and consent. Internet service providers and merchants that adhere to the code of conduct will be awarded with a seal that guarantees consumer protection.
On the issue of taxation, Magaziner said the US was heartened by the recent World Trade Organisation agreement not to impose customs duties on ecommerce for a year, but would continue to push for a "permanently duty free Internet".
"Sales tax, or VAT, is another issue, and the problem with taxing the Internet is knowing where the seller is. So we think transactions should be taxed at the buyer's end," he said.
Magaziner said an internationally agreed definition of residency would have to be established, which could then be stored on a smartcard used for electronic payments over the Internet. The sales tax would be automatically deducted by an escrow agency, and then sent to the relevant national tax authority.
"The tax authorities would get their money much faster than the three months it takes now. They could afford to pay for an escrow agency and still save money. This system would also be far easier to police against non-compliance, which is currently over 30 per cent of all transactions," he argued.
Magaziner said the technical problems of establishing residency, ensuring the possibility of anonymous payments, and redistributing tax to areas that currently rely on large sales tax revenues, were all soluble with modern technology, but tax authorities must agree a uniform approach.
"There are 60,000 different tax authorities in the developed world, and they would all fit on to less than 10 per cent of a smartcard's memory. The biggest problem is the tax authorities' fear of change," he said.
Despite the US preference for a hands-off approach to Internet regulation, Magaziner admitted that its export controls on encryption remain a problem.
"Encryption policy is the one area that has been inconsistent with everything else that we are doing. Unfortunately, the debate has been driven by the law enforcement community, and not the IT industry," he said.
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