December 29, 2009

Shopping on-line? Would you be willing to pay these three new taxes?

I had an interesting conversation with my next door neighbour over the weekend. I was telling him that I did all my shopping for Christmas in 30 minutes by using Amazon wish lists. He then started to explain to me the ramifications of this for the government.

Listen up and see how much of this rings true.

If I purchase things on-line there is a knock-on effect for the government of a country as follows:

  • Parking income in city centers is reduced as fewer journeys are made.
  • Income from taxes on petroleum is reduced as less gasoline or petrol is used in purchasing things
  • Bricks-and-mortar companies have reduced income (and therefore reduced corporation taxes) because fewer people are shopping in the high street.
  • As shops close down, inner city rates are reduced and the income to the local government is reduced accordingly.
As a result the government will find itself with a smaller than expected income in coming years as a direct result of more people buying on-line.

So my neighbour's hypothesis was that the government will need to find alternate methods of  filling that shortfall. We started to think about how they would do it.

There are a number of easy alternatives that could come up:
  1. Taxing Internet use - At the moment this has already been proposed in the UK. It is nominally to pay for increases to the broadband infrastructure, but that could change. The charge is a small one at the moment but I can see that increasing.
  2. Charging an internet purchase tax - At the moment a large number of transactions in the UK (and indeed around the world) are subject to a sales tax. In my mind the sales tax (Or VAT) is the single most unfair tax in existence. The government is effectively saying ‘Every time an individual purchases anything from a company (or a company purchases something from another company) we will charge you an amount of tax on the value of that transaction’. In other words when I take the money I have earned from working- and on which I have paid income tax already - the government will charge me to exchange that money for goods or services that the government does not, actually manage or control, and the profit on which the recipient company will then have to pay corporation tax. We’re caught three ways there. In the UK the VAT rate is currently 15% (and due to go to 17.5% on Jan 1st). So every internet transaction is charged that amount anyway (Although usually in the UK this amount is already incorporated into the price of goods or services that are purchased rather than being added on at the checkout). Now what would happen if an internet purchase tax was added to the transaction? It might be a nominal amount per transaction, meaning that purchasing ten different things in a single order would cost the same as purchasing one thing in the same order. Or it might be a cost per item, which means  that purchasing ten items would incur a larger tax than purchasing one item.
  3. Eco Tax - With the Climate summit in Copenhagen still fresh in our minds would the government think about adding a carbon levy to each transaction? Obviously if purchasing physical goods from the internet there will be a transportation aspect to get the goods to the delivery address. Maybe each transaction should have a carbon tax. The tax could be varied according to the size of the package and the distance travelled? Or what about adding a carbon tax to every transaction regardless of whether it was a physical purchase or not? After all ebooks, software downloads and music all use electricity either in creating them, storing them or playing them. The electricity has an associated carbon footprint. Shouldn’t this be paid for?

So the question is “How many of these taxes would you be prepared to pay for the privilege  of on-line shopping?”Can you think of any other taxes or indeed any alternate way of raising government revenue?

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