Ray Van Eng (10/14/97)                 

Since the U.S. leads the world in Internet usage and electronic commerce, there is intense interest from around the globe to hear what Uncle Sam has to say about taxation on the information highway.

The words came when the U.S. Department of the Treasury announced that they will unveil a plan for taxing digital content sold and delivered over the Internet to overseas buyers.

Initially, the new law which stipulates that taxes be paid to the U.S. government and not to any foreign authority will cover only Net based software sale. However, it may extend to all digital content as well as tangible goods such as CDs, shrink wrap software etc. purchased over the Internet sometime next year.

Presently, a U.S. web shop operator would have to pay taxes to both the U.S. government and authorities in foreign soil.

Under the new regulation, as Treasury official Bruce Cohen pointed out, if a U.S. citizen buys software from Germany, for example, the German vendor will have no obligation to collect the U.S. tax from that customer.

Without a doubt, the new taxation policy would almost surely draw fire from other countries as the U.S. has the most copyrighted digital material for sale on the Internet.

Although Cohen said that the U.S. will seek support for the new cyber tax proposal from other nations in Europe and Asia, his government will go ahead with the plan even if no consensus is forthcoming.

Even then, the U.S. Treasury still has to decide which type of digital content represents a service rather than a product, an vital distinction as the two are taxed differently.

In Europe and Australia, there have been talks about a "bit tax" in which a small charge extracted by the local government would be imposed on all digital data transmissions as monitored by Internet service providers.

Mostly, what European bureaucrats are interested in is maintaining their revenue from the value-added tax (VAT) scheme that could make up to about 30% of their income.