US plans for Internet tax

Bill Clinton’s senior adviser on Internet issues, Ira Magaziner, has outlined how electronic commerce transactions could be made subject to sales taxes worldwide.

Magaziner said the US government welcomed the recent World Trade Organisation agreement not to impose Customs & Excise duties on electronic commerce for a year, but would continue to push for a ‘permanently duty-free Net’.

Although Magaziner believed the ‘duty-free’ period would help defeat Net tariffs, sales tax was a different story.

‘Sales tax, or VAT, is another issue, and the problem with taxing the Net 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 smart card used for electronic payments over the Net. The sales tax would be automatically deducted by an escrow agency, and subsequently sent to the relevant national tax authority.

‘The tax authorities would receive their money considerably faster than the three months it takes now. This system would also be far easier to police against non-compliance, which is currently more than 30% of all transactions,’ he said.

Andrew Nutman, a specialist in online VAT at Deloitte & Touche, said the US proposals were broadly parallel with international discussions.