UK Customs reveal ecommerce tax plans

Customs authorities in the UK have revealed plans to tax businesses automatically every time they sell music or video over the Internet.

Speaking exclusively to Silicon.com, a Customs official said they were working on software that will be incorporated into existing accountancy packages.

"The business-to-consumer online market in low value goods is small at the moment," said David Holmes, team leader at HM Customs Process Supply division. "But as bandwidth grows, the download of consumer products such as music and video will increase, and taxes will be lost unless we act now."

Holmes said the new taxation software will automatically register vendors with every tax authority in the world, so that taxes can be sent to the relevant government for each online sale.

In the real world, businesses are expected to register themselves for taxation. But the OECD's (Organisation for Economic Co-operation and Development) recent commitment to taxing ecommerce in the country of consumption makes self-assessment impractical in the global market.

The news was received with scepticism by consumer experts. Alan Stevens, Editor of Which? online, who represented British consumers at the OECD's October summit, stressed that there were significant challenges to overcome.

"The software won't know where the customer is based, and software vendors could charge businesses a lot of money for upgrades," he said. Stevens added that software vendors such as IBM's chief executive, Lou Gertsner, had put a lot of pressure on customs officials at the summit to adopt the proposals.

Charles Walker, director of Lycos UK, added: "It sounds like pie in the sky to me. There is no global tax authority to ensure that each country participates - and how could you police companies who don't install the software?"

HM Customs is liasing with European and US tax authorities to create a global standard for the software, which will most likely be based on the Open Trading Protocol, supported by BT, MasterCard, Netscape and hardware vendors including IBM.

According to Holmes, Customs had just started talks with SAP and other software developers, with regard to building the module into their accounting packages. "We are hoping for a coherent tax system for ecommerce by the end of 2000," he said.