Peter Cochrane's Blog: Raise money from the web? It's a problem that's taxing the politicos

Because it's as easy as nailing a jelly to a tree...

Web tax

Tax authorities will try to crack the problem of raising money from the web but technology will see to it that they ultimately failPhoto: Shutterstock

Written at the Technical University of Denmark and dispatched to via a free wi-fi service at 35Mbps later the same day.

Taxation used to be about raising money for specifics, such as funding wars or the provision of infrastructure, education and health care. But times have changed, and taxation is no longer simple or straightforward.

There was a time when the excise matched specific needs. However, now the direct association of monies collected and monies spent is at best obscure, and at worst impossible to decode. Taxation systems now gather money into a single government pot to be doled out as departments see fit.

For example, it is not unusual for an easy target such as motorists to see only a fraction of their road taxes spent on highway upkeep and expansion. Moreover, novel taxes such as VAT are levied without any particular justification or specific purpose other than generating bigger departmental budgets.

So here we are with a financial crisis in the northern hemisphere that is threatening countries and global stability. To balance their books, governments have to generate more money. But it's far easier to levy more taxes than it is to increase the size of an economy.

You might guess where they are looking - the world wide web. Internet trading is now rivalling, and overtaking, the old markets and the old ways of doing business. So the likes of Amazon, eBay et al are coming under the scrutiny of the taxation hawks.

But there is a big snag for governments which they don't seem to get. Ebusiness is not fixed. It is not country- or domain-specific, and the providers can move entire operations to tax-neutral, or far more tax-efficient, locations in real or virtual space.

Technology always challenges and changes everything, and online services and ebusinesses can all be virtual, distributed and, if needs be, dynamic. So will any government succeed?

The French and Americans already failed to control their populations' use of services deemed unsuitable, and far more repressive regimes in the Far East and Middle East have failed too.

My assessment is that the taxation boys and girls are going to find themselves trying to nail a jelly to a tree or drill holes in a cloud. They may try hard, and they may even win in the short term but in the long term they will lose.

The agility of the internet traders combined with new technologies, and a whole army of minds dedicated to keeping the web tax-free, will see it costing governments more money than they can possibly gain.

And that's only the start. How do you tax businesses run by machines with no physical footprint and no people involved? We really are entering virgin territory here.