EC sceptical of bit tax idea

Taxing every bit of information on the Internet may be a solution to Europe's budget crisis, but such an initiative is unlikely to win support from either the European Commission or its 15 member states, EC sources say.

The idea for a bit tax was contained in a report prepared by the High Level Group of Experts, chartered last year by European Commissioner Padraig Flynn to examine the impact of the information society on employment levels and working conditions.

"Although the idea is interesting, I don't think it will go anywhere. Not only would it be impossible to manage, but there is no enthusiasm within the Commission for such a sweeping tax reform," says a senior EC official, who asked not to be identified.

An interim report from the group, issued earlier this year, will be followed by the end of the year with the final text and a detailed analytical report examining how such a bit tax could be structured, the official says.

The group, headed by Luc Soete, director of the Maastricht Economic Research Institute on Innovation and Technology, recommends the bit tax as a way to stop the erosion that the evolving service-based society is causing in the traditional tax base, which is based on physical transactions of goods. As the information society grows, the burden of taxation needs to shift as well, according to the group's report.

The report states that the group "shares the view of some experts in the field that there might be a need for a new tax base, more closely associated with information exchange, as for example in the case of a bit tax." The report dismisses allegations that such a tax would undermine the development of the new services.

The EC acknowledges that the eroding tax base is of concern. Tax commissioner Mario Monti has already stated that information technology-based services threaten value-added taxation.

Revenues derived from VAT are especially threatened "by the growing number of international services which use new technologies to locate taxable transactions outside the territorial scope of the common VAT system," according to a report by Monti.

But solving this problem by imposing a tax on the Internet "was greeted by horror within the EC", says the EC source.

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