E-commerce tariffs: will taxes soon be imposed on internet services?

Since 1998, there has been tax exemption for internet services thanks to an agreement within the World Trade Organization (WTO), which is renewed every few years. We users benefit from this, among other things, when streaming films, series and music. But also when downloading software and eBooks and using cloud storage. Last but not least, this makes web tools more attractive, whether for image editing or zoom calls. This tax and duty exemption on e-commerce offers will be discussed again next week at the 13th Ministerial Conference of the World Trade Organization because of the current moratorium expires in March. Some states have announced that they will not extend it.

Taxes on streaming, web tools, software, cloud services, gaming and more – some countries in the World Trade Organization (WTO) are in favor of e-commerce tariffs. This would end a moratorium on this area that has been in place since 1998.
Taxes on streaming, web tools, software, cloud services, gaming and more – some countries in the World Trade Organization (WTO) are in favor of e-commerce tariffs. This would end a moratorium on this area that has been in place since 1998.

WTO meeting in Abu Dhabi: E-commerce tariffs as a point of discussion

Decisions within the WTO must be made unanimously, which is why only one dissenting vote can stop a vote. And that could happen with regard to the customs moratorium on Internet services and online products. According to Bloomberg At least three large developing countries are said to have something against the continuation of the current regulation.

Above all, concern about Big Tech companies from the USA and other leading countries with such an economic sector is intended to fuel the rejection of the status quo. New offerings, such as artificial intelligence, which are difficult to catch up with, play a role here.

John Denton, secretary general of the International Chamber of Commerce (ICC), cited Indonesia, South Africa and India as three of the biggest dissenters to renewing an e-commerce duty-free regime. Bloomberg made inquiries in all three countries and received a response from at least the trade and finance ministries of Indonesia and India.

Both are of the opinion that tariffs are a means of responding to rapid change in the digital world. However, it should be noted that similar statements have already been made in the past. A possible dissenting vote in the case of e-commerce freedom was used as a means of applying pressure for concessions in other areas. It could be like that again this time.

No international definition or legal framework for e-commerce

There is no cross-national legal framework for digital commerce, for the provision of streaming, social media apps, web tools and the like. There is also no precise, international definition for all of the different offers. It is therefore difficult to say what a taxation or tariff model could look like for this sector of the economy. 

It is therefore more than unclear what and how much should be billed - the amount of data in bits and bytes, the number of connections to the server, individual content such as software, films and songs? In addition, large amounts could not be accessed, especially in low-income countries. Otherwise the use of foreign internet services would become completely unattractive and the hoped-for source of income would shrink straight into nothing.

According to the linked Bloomberg report, the potential revenue from taxes on the use of e-commerce products is said to be comparatively low. The results of a study by the Organization for Economic Cooperation and Development are used for this purpose. According to this, such customs would increase government revenue by 0,1% - but only if the use of the supply remains the same and does not decrease as a result of the change.

It is not so easy to say whether and to what extent a state would benefit from lifting the moratorium that has been in place for decades. On the user side, one can only hope that the possible dissenting votes so far are just a bluff to give the respective countries leverage in other areas of the WTO negotiations. There are already plenty of calls for reversal and warnings about unforeseeable consequences.

Unequal opportunities make agreements very difficult

Over 180 business associations from different countries spoke out in an open letter in favor of maintaining the status quo. It explains that states that impose tariffs on online services and products are harming themselves in the long run. Also with regard to possible investments in the local tech industry or similar sectors of the economy. However, the basic idea of ​​the theoretical concept is understandable.

Because inequalities in this area are constantly growing. This started at the beginning of widespread internet use in the late 1990s, but is now even more evident in various offerings – streaming, trading, AI and more. The biggest competition in pretty much all areas comes from just one country, the USA. In order not to have to put a complete stop to this, imports for the provider companies or consumption by users could be taxed. As I said, an idea that is understandable in theory.

“It is becoming increasingly important for states and companies to adapt to digital trade,” said Torbjörn Fredriksson, head of the e-commerce group at the United Nations Conference on Trade and Development, according to Bloomberg. “Unfortunately, the rapid pace of digitalization exceeds the ability of many countries to do this.” Due to a lack of structures for digitalization and e-commerce expansion, many countries were left behind, especially during the Covid pandemic.

“It is a bad time for multilateralism,” says the same source, Martina Ferracane, a research fellow at the European University Institute, which recently launched a digital trade database. “This is not the moment when countries are ready to create a new global consensus on almost everything.” But what happens if that consensus is not created? How broken can the Internet as we know it be made? That probably remains to be seen.

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