Taxing the Internet, Gordhan’s regressive proposals

IT’S BEEN a long time coming, the new tax proposals mooted by government could end up doing more damage to Internet access than any censorship laws. In his latest budget speech, Pravin Gordhan outlined a plan whereby ” foreign businesses which sell e-books, music and other digital goods and services should be required to register as VAT vendors, in line with regulations which have been adopted by the European Union and other jurisdictions.”

Exactly why this is bound to back-fire is obvious, since many small online website stores hosted in the cloud will not be able to cater to local tax regimes. The policy will only make sense to large global concerns like Apple iTunes who are likely to monopolise the system. Mid-sized online retailers will simply refuse to ship orders to South Africa or block services that conflict with local tax laws.

The job of collecting an Internet tax, if it is ever implemented will be extremely difficult to police. It also sets a precedent whereby sites like Youtube could find themselves susceptible to industry-lead blanket copyright taxes which are bound to come on the heels of any new SARS tax initiative.

The regressive system of taxation being punted by SARS, is also the bailiwick of the music industry who see it as a way of enforcing compliance with antiquated copyright laws. There are also proposals by on-demand digital television companies for the entire Net to be licensed. Sweden recently adopted a law forcing computer users to license their computers, and South Africa could soon follow suit.  The online freeconomy which has existed for nearly two decades, and which has resulted in mashup sites like ccMixter and Soundcloud are bound to face pressure from a government which sees the digital world as ripe for the picking.

Industry pundit Arthur Goldstuck supports these proposals and has decried the use of torrents and video streaming, blaming “a few hundred bandwidth hogs” for destroying intellectual property. Clearly the old guard just don’t get free torrents and the creative commons, myopically perceiving the digital world as a threat instead of an opportunity, in other words, they fail to acknowledge the Net as anything more than another marketplace, instead of seeing it as a way to create a new form of capitalism in which all users are effectively shareholders in a global network that redistributes wealth while creating digital assets.

Customs and Excise already collect substantial tax for the¬†exchequer¬†from imported goods shipped via the Internet, and this duty and burden need not be shifted to online retailers.¬†Fortunately South Africa’s Bill of Rights guarantees communication freedom and the right to privacy, it will therefore be interesting to see whether any of the Ministers proposals are able to pass constitutional muster.