3.5 Business Taxation and the Role of Governments


3.5 Business Taxation and the Role of Governments

Internet technology has made one thing painfully clear: the way in which business activity is taxed in the world is too complex. As commerce crosses local, state, national and international borders, the question of how to tax commerce continues to be a topic of heated debate. In the United States alone there are approximately 30,000 recognized tax jurisdictions and within these delineated areas of commerce approximately 7,000 tax rates control the exchange of goods and services. Considering the number of local tax authorities worldwide and taking into account international trade agreements and other commerce-related regulations, the Internet and eCommerce has brought to the surface an outdated and arcane process that resembles a business process that has been made extremely complex by incorporating exceptions to the rule over a long period of time.

Government officials who once scoffed at the Internet as a viable medium for trade and commerce are now trying to determine how to tax transactions which continue to grow and cross international borders. Taxes are a levy imposed by the government on the income, wealth and capital gains of persons and businesses (direct tax), on spending on goods and services (indirect tax) and on properties. In the United Kingdom, taxes on income include personal income tax and corporation tax; inheritance tax is used to tax wealth and capital gains tax is used tax windfall profits; taxes on spending include a value added tax, excise duties and tariffs; taxes on property include council tax or local tax and the uniform business rate. Such taxes are used to raise revenue for the government and as a means of controlling the level of distribution of spending in the economy.

International taxation on goods and services will be the next big battlefield for economic supremacy. The traditional geopolitical boundaries drawn because of the invention of nationalism in the nineteenth century and subsequently redrawn after World War II become an impediment to global business if a taxation war breaks out.

In 1293, almost four million pounds (medieval currency unit, four Genoese pounds to one pound sterling used in England) of taxable exports flowed through the port of Genoa in Italy. Italy had four cities with populations over 100,000 (Venice, Milan, Florence and Genoa).[117] In comparison, taxable exports in England during the late thirteenth century were only a quarter of a million pounds. Taxation in the Middle Ages was not intended to level the playing field between geopolitical centres of power; rather, it was a mechanism for raising funds for local governing structures.

An examination of the basic premise of the American dream of home-ownership as an icon of freedom from a sovereign reveals that in reality the social contract has replaced a monarch (king or queen) with a faceless monarch embodied in the ever-growing layers of government. In order to illustrate this point, the reader can look at states that charge a property tax to homeowners. In later medieval society, an individual paid a tribute to the king in lieu of having to serve in military actions. This tribute was later transformed into a basic taxation mechanism to provide a ready source of funds. The land was entrusted to the sovereign and people rented the land from the sovereign. Modern property tax follows the same mechanism; people are simply renting the land from the faceless sovereign – the state/local government. In the United States, if property taxes go unpaid, the government can seize a property and place the homeowner into a state of receivership liquidating the property to settle the debt. In either case, you pay the king or the state to rent the use of land. Failure of payment has the same consequence; the mechanism is the same, only packaged into a readily accepted social contract that disguises its roots in a medieval past.

Medieval taxation is disguised in many of today’s socio-economic transactions. The geopolitical structures of world governments rarely agree to the value, amount and level of taxation on goods and services. Adding to the complexity is the lack of agreement on what should be taxable or not taxable. Value added tax (VAT) comes with various different rates in different countries within the same geography. In the UK a single rate of 17.5 per cent is levied on goods and a few miles across the channel France has four different rates ranging from 1.5 per cent to 20.6 per cent. In another example, books and magazines are subject to VAT in some countries, but not in others.

To the dismay of local, state and federal governments, the World Trade Organization (WTO) is currently lobbying to establish the Internet as a tax-free zone. The countries of the European Community are not happy with the idea, and are trying to make sure that the appropriate tax is paid on goods bought over the Internet. Similarly, the United States has declared a moratorium on all Internet taxes until a government committee has finalized its report, which for now gives US companies yet another advantage over their European counterparts.

The Internet and eCommerce technologies give us a chance to re- examine the relationship between customers and manufactures and also the function of government and its services. In the United States, there is one central state government for the state of California, with a land area of approximately 158,000 square miles and a population approaching 34 million according to the 2000 US census. Located on the opposite side of the country, where state boundaries were drawn over two hundred years ago, a similar number of people (33 million) living in a smaller area of approximately 114,000 square miles is governed by the seven state governments of New Hampshire, Massachussets, Maine, Vermont, Connecticut, New York and Rhode Island. If government was viewed through the same lens as business, stockholders would be encouraging a consolidation of the states operating on the east coast to reduce operating cost. However, taxpayers seem oblivious to the cost of running seven governments compared to one and the potential savings of tax dollars in consolidating government functions into one state, say the state of New England. Alternatively, since many people identify with the lifestyles associated with each existing state, they could keep the basic structure of the governments in place and consolidate administrative functions such as purchasing and technological infrastructure as a way of achieving economies of scale.

Evidence of using technology in the same way that business employs it to reduce the cost of operating is the move towards interacting with government agencies electronically. The UK’s Inland Revenue has made great strides in streamlining the filing of business taxes and payroll taxes by utilizing the Internet. Electronic filing of employer returns will become a universal requirement by the year 2010. What is important to note on the rising debate on Internet taxation is that it will ultimately result in world governments, local tax authorities and individual taxpayers reassessing the concept of taxation as a mechanism in the redistribution of wealth.

Electronic Voting

It is surprising that individuals have embraced eCommerce and Internet banking with its sometimes well-publicized security flaws, while being reluctant to exercise a digital right to vote, or eVote. In the minds of individuals, personal wealth requires security, privacy, fidelity and trust. The technology industry has demonstrated that commerce and banking can be conducted in this new medium within an acceptable margin of security. This must also be the feeling of the millions of people who regularly use home banking to pay bills and purchase goods online, thus providing merchants with their credit card numbers.

However, voting on the Internet remains as elusive as the medieval unicorn. The industry has created a technology that revolutionizes communications, allowing politicians to receive public responses to many of today’s political issues. Yet, only pockets of experimentation are underway. There are two reasons for the reluctance – or resistance – to use technology in this way: fear of fraud, and voter behaviour (apathy and adoption).

The fear of fraud stems from the perception that elections are controlled and ballots manipulated. This fear is not directed towards the individual voter; it indirectly accuses the electoral process as being susceptible to indiscretions from within. Oddly, electronic ballots with an encrypted token could carry an individually generated authoritative key that would provide a greater ability to audit election results. For an electronic infrastructure to be a viable mechanism for a democratic process, it must demonstrate that it is trustworthy. The public must be convinced that eVoting prevents impersonation while maintaining a degree of anonymity, safe from computer terrorism or hackers and, more importantly, manipulation by individuals within the government.

Voter behaviour can be characterized as apathy and adoption. In the democratic nations where voting is not compulsory, voter turnout rises and falls as political, economic and military activities increase or decrease. Enticing people to take an active role in government is a problem that transcends technology. However, as discussed in section 2.3, technology literacy is on the rise. One could argue that the convenience and timeliness offered by eVoting may be the value proposition that will persuade voters to take a more active part in the electoral process. Theoretically, politicians could pose questions to their constituents and receive valuable feedback on the social attitudes regarding key issues, without having to depend on the media or other survey data. The value proposition to a political appointee is direct feedback versus data that may be broader in its coverage of voters. This is not to say that broad consensus data is invalid. However, using data as a source of comparison, a politician could correlate the relevance of an issue with the attitude of his or her constituents. Adoption of the technology as a legitimate medium for this type of exchange will come from creating an ethos of trust. In the UK, for example, individuals are fearful of identity cards and the possibility of votes being traced. Alternatively, votes could be cast and tabulated using existing banks and clearing networks, thus providing a new function for banks.

As Kevin Brown pointed out, another value proposition of eVoting is the fact that today’s youngsters – who will soon be eligible to vote – are so used to doing things online that eVoting will perhaps be the most effective way to get them to participate in the election process.[118] It may come as a surprise that in today’s society voting or not voting is a matter of personal preference rather than exercising one’s right in one of the few truly participative elements of democratic societies. However, this is what voting has become, and therefore it is up to governments to make the best of the opportunities offered by technology to provide incentives and reinforce our civil rights.

[117]See R. Lopez, The Commercial Revolution of the Middle Ages 950–1350. (Cambridge: Cambridge University Press, 1995).

[118]K. Brown, ‘An Electronic Electorate’, Financial Times, 24 April (2002).




Thinking Beyond Technology. Creating New Value in Business
Thinking Beyond Technology: Creating New Value in Business
ISBN: 1403902550
EAN: 2147483647
Year: 2002
Pages: 77

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net