Confusion on new Net tax measures

The "no Net taxes" movement achieved a significant victory two weeks ago, when 132 nations agreed at a World Trade Organisation meeting in Switzerland that there should be a one-year, tax-free period on the Internet.

The decision falls short of what the motion's most ardent backer, US President Bill Clinton, was seeking: a permanent moratorium on Internet taxes. Nonetheless, the measure is seen by Web and particularly, e-commerce supporters as being a major boost to the development of a serious market on the Internet.

President Clinton's concern is that the developing world of Internet commerce might be throttled, and at the very least, haphazardly restricted, by patchwork tax regimes implemented by various countries. While such a situation could benefit those countries which choose not to impose taxes on outward sales of goods, overall this would make e-commerce confusing and unpredictable. The whole idea of the Net so far has been that a user in one country can (barring language complications) seamlessly connect with others throughout the world.

So while President Clinton was in Europe for the G8 summit in Birmingham, he threw his support behind the Internet tax measure, even travelling to Geneva to speak out on behalf of the ban. It's hard to imagine any other world leader taking such a proactive role on behalf of the Internet, but the Clinton administration, especially in the person of Vice-President Al Gore, has taken a strong interest in (and more importantly, even understands) Web affairs.

Now that the decision has been taken, there still seems to be widespread misunderstanding about what the moratorium actually means. The call for no Net taxes, which has been at the centre of an ongoing debate in the US, has led many to believe this means no taxes whatsoever will be collected for sales made on the Web.

This has never been the intention of the initial, US-only proposal backed very publicly earlier this year by Mr Clinton. Then, as now with the WTO agreement, the suggestion was that no new taxes should be levied. In other words, governments should not create new taxes, different from those which already apply in real-world transactions.

The WTO proposal applies to all transactions involving so-called "hard goods", or objects which you can touch and feel which would be delivered to you by mail after you have placed an order. Such transactions are already subject to taxation when the goods arrive in the country for which they are destined. It also applies to digital goods

anything which could be delivered electronically, in digital form, to the buyer over the Net: a software program or music, for example. In the first case, no new, Net-only taxes can be applied. In the second case, no taxes at all can be applied.

Not everyone was entirely happy with this situation. Many developing countries like Pakistan have looked to Internet sales as a way of bringing new cash into their economies, and hoped that taxes could also help inject much-needed funds into government coffers.

The Republic, too, voiced limited dissent. Along with Britain and Italy, the Republic said at a General Affairs Council meeting of EU member-states after the WTO vote that it had problems with the opening statements of the WTO ban. This states that "any issue" pertaining to e-commerce may be raised by member-states.

According to a spokesman from the Department of Enterprise, Trade & Employment, the Government felt that "any issue" is too vague and falls outside the remit of the WTO. Instead, wider issues should be the province of the OECD.

That may be the case. But if the Government is truly trying to persuade ecommerce companies to base themselves here, Ireland's on-the-record wariness about a document passed by 132 nations and which, in any event, only applies for the year was certainly not the best way to make a strong pro e-commerce statement.

Reuters has already reported Ireland's dissent internationally. The story was carried on one of the major technology online news sites, TechWeb (www.techweb.com), which is widely read by people in the tech industry, particularly in Silicon Valley. If this suits the Government, that's its choice. But no one in the Dail should underestimate the way in which such public gestures by Ireland fit into the overall image of the country as an agile - or not - technology base.

Karling Lillington is at klillington@irish-times.ie