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The "Bit Tax": The case for further research

A high level group of experts was set up by the European Commission, in May 1995, to examine the social and societal changes associated with the Information Society. A "first reflections" report, "Building the European Information Society for us all", was presented to the Comm...
A high level group of experts was set up by the European Commission, in May 1995, to examine the social and societal changes associated with the Information Society. A "first reflections" report, "Building the European Information Society for us all", was presented to the Commission in January 1996. This report outlined a broad set of issues confronting policy makers as Europe moves towards the full development of an Information Society and set out over 100 initial policy suggestions.

Among these suggestions, was a recommendation to investigate further "appropriate ways in which the benefits of the Information Society can be more equally distributed between those who benefit and those who lose". More specifically, the expert group, led by Professor Luc Soete, called on the Commission to undertake research to determine whether a "bit tax" (a tax on the transmission of information by electronic means) might be a feasible tool in achieving such redistribution aims. This suggestion met with considerable reaction from the press, policy makers and individuals concerned at the suggestion of a tax on information.

In order to keep the debate on this issue open, Professor Luc Soete, chairman of the high level expert group has prepared a discussion paper entitled "The 'Bit Tax': The case for further research". The paper sets out the arguments in favour of at least investigating the feasibility of such a new tax.

The paper argues that a "bit tax" reflects the need for a general shift in the tax base of society. As our economy becomes more and more characterized by the production, distribution and consumption of intangibles, large parts of the production/consumption process appear invisible. It is suspected that part of the productivity and consumer gains from the new information and communication technologies have disappeared into the production and distribution networks and have not been reflected in lower prices or higher profits or salaries.

The development of the electronic trade is also affecting government tax revenues. Goods that were traditionally distributed physically are becoming increasingly available via the networks. The taxing of the distribution of these goods, which has traditionally formed one of the essential bases for national, state or even local government's tax revenues are, as a result eroding rapidly.

More generally, it can be argued that the simple fact of not adjusting a nation's tax basis will automatically imply a non-neutrality of different distribution or communication systems; the newest communication systems avoiding, either by accident or by design, the prevailing tax levying system.

Prof. Soete argues that "Just as one to two hundred years ago, economic discussions were dominated by the "corn tax" reflecting the importance of grain for the national economy, today, the dominant issue should be how governments can adjust their tax base in line with the changing economic structure towards an Information Society and the increasing importance of information transmission for economic production and consumption".

These and further arguments in favour of a "bit tax" are set out in detail in the discussion paper "The 'Bit Tax': The case for further research".
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