Moving target

THE COMPLEXITIES of government are now such that it is safe to say that no one fully understands the system. Hundreds of laws, thousands of regulations and tens of taxes are enacted each year. Nothing is removed, and the connection between artefacts of government and real life becomes ever more tenuous.

If civil servants, regulators and politicians are unable to keep on top of all this, what chance do company managers have? Is this the societal treacle that brings the machine to a grinding halt? At what point does the administrative load stop the machinery of commerce, through the demands of obtaining permits, satisfying health and safety requirements, licensing and paying taxes? No one knows. But there is a light at the end of this particular tunnel.

In recent years, governments (and some industries) have tried to hold back progress, and they have crashed and burned spectacularly. A prime example is the music industry versus the file-sharing community. Technology undermined the old business of ripping off customers and performers, and put the user in control.

Can you remember the old days? It was impossible to purchase a single track and you had to buy 18 tracks you didn’t really want. Napster (followed by iTunes) changed all that, and music was set free. So who lost? A music industry that was unable to adapt with new business models. Everyone else – performers and customers alike – benefitted hugely, and a creative industry was revitalised.

This change experience has been repeated in industries relating to books, news, movies, medicines, healthcare, retail and much more. But on the sidelines, the negative forces continue to try to slow down progress, and the latest strategies under consideration include the possibilities for new forms of taxation.

Taxes were originally about raising money for specifics, such as the funding of potentates, wars or the provision of infrastructure, education and healthcare. But times have changed, and the direct association of tax monies collected and tax monies spent is obscure at best, and impossible to decode at worst. All funds are now siphoned into a single pot to be doled out as various government departments see fit.

All governments are feeling the pinch of a crisis that threatens global stability. They have to find more money to balance their books, but it is easier to levy more taxes than it is to increase the size of an economy. As internet trading is overtaking the old markets, you can guess where they are looking to raise more taxes.

But there are big problems ahead for those who seek to tax the e-business domain. The potential target is not fixed, by country or domain, and providers easily move entire operations to tax-neutral, or tax-efficient, locations in real or virtual space. Everything can be distributed and dynamic: the ultimate “here today, gone tomorrow” scenario.

So will any governments succeed? Recent history does not bode well. The French and American governments failed to prevent their populations from using search and gambling services deemed unsuitable. More repressive regimes in southeast Asia and the Middle East failed too, under wartime conditions. Tax inspectors are going to find themselves trying to drill holes in clouds.

Governments may win in the short term, but in the long term their tax collectors will lose. The agility of internet traders, new technologies and an army of young minds, all of whom are dedicated to keeping the internet tax free, will ensure that any victories are shortlived. And that is only the start. How do you tax businesses run by machines with no physical footprint and no people involved? Because that is the next phase coming down the pike.

Peter Cochrane is an IT consultant and former chief technologist at BT.