Download Taxation and the digital economy - Alliance for Affordable Internet

Taxation and the digital economy:
alternative models and public policy
considerations
Dr. Raúl L. Katz, Director, Business Strategy
Research, Columbia Institute of Tele-information
El impacto de la politica fiscal en el sector de
las TIC en la Republica Dominicana
Marzo 27, 2017
Santo Domingo, Republica Dominicana
A diversity of taxes are collected from firms and consumers of the digital
ecosystem
DIGITAL ECOSYSTEM VALUE CHAIN
Content
Creation
•  Content
production
•  Intellectual
Propertyu
Rights
•  Available or
not on line
Applications Communication Aggregation
Development applications
Platform
•  Applications
development
for end users
(games,
utilities, etc.)
•  Distributed
through
hosting
platforms
•  Voice, text
and video
services
provided by
OTT
•  Proprietary
and user
generated
content
packaging
Equipment
•  Technology
infrastructure
to enable
content
delivery (e.g.
Software
DRM, servers,
hosting
services, etc.)
Hosting /
Portal
•  Content
distribution via
app stores
Transport
•  Content
transport
up to the
user
device
Devices
•  Devices
used to
access
content
(smartphone
s, tabletas,
PCs)
Consum
er
Sales taxes
on handsets
Corporate taxes
Import
duties on
handsets
Value Added Taxes
Ownership
fees
Video streaming
taxes
SalesTaxes on
equipment
Sector
specific
taxes
Import duties
Property taxes
2
Digital sector firms are imposed a range of taxes which could have
an impact on their level of investment
Digital Good or Service
Telecommunications
service providers
Internet Service Providers
Over-thetop
Tax Examples
• Corporate taxes (average: 30%)
• Indirect taxes on customer premise equipment (e.g.
modems)
• Sales tax and import duties on initial equipment
purchase
• Property taxes
Content
providers
(music, films)
(*)
• Tax on cloud services (some states in the US)
• Value added tax on digital goods (European Union,
Japan, South Africa)
• Tax on video-streaming services (2% in France,
Brazil based on catalog size, 3% on gross income in
Buenos Aires)
Digital
advertisers
• Different approaches driven by cross-border taxation
principles
(*) These are generally passed through to consumers; however, if demand is elastic,
suppliers might opt to absorb a portion of the burden by reducing prices
3
Consumers of digital goods and services can be imposed a range of
taxes which ultimately impact their total cost of ownership and use
Digital Good or Service
Service
Wireless
Tax Examples
•
•
•
•
•
•
Handsets
•
•
Broadband
Value added or sales tax on monthly bill
Value added tax on international roaming (“double taxation”)
Telecom specific taxes (e.g. mobile broadband, m-Money)
Fixed taxes (e.g. 911 fees)
Value added or sales tax
Import duty
Telecom specific taxes (e.g. SIM card, activation tax, discretionary spending)
Fixed taxes (e.g. ownership fees, recycling)
• Internet access taxes
• Value added tax on broadband subscriptions
International Long Distance • Value added tax on long distance calls (“double taxation”)
PCs, tablets
Digital content
Electronic commerce
• Value added or sales tax on purchased equipment
• Customs duty on imported equipment
• Value added or sales tax on digital goods (e.g. music, movies)
• Value added or sales tax on physical products purchased through a digital
channel
4
As a principle, taxation should attempt to be neutral and equitable
across all sectors of the economy
§
§
§
Adistortionoccurswhenachangeinthepriceofagoodresultingfromtaxation
triggersdifferentchangesinsupplyanddemandfromwhatwouldoccurinthe
absenceoftaxes
• Consumers,particularlythosethatarepricesensitive,limittheadoptionof
thegood
• Firmsreducetheirrateofinvestmentininfrastructure
• Firmsshifttheirdeploymentfootprinttominimizetheirtaxburden
• Differenttaxregimescreateasymmetries
Thedeviationinsupply/demandequilibriumisdefinedasthedeadweightloss
(costoftaxationoverandabovethetaxespaidtothegovernment)
Inthissense,taxationregimesshouldseektominimizediscriminationforany
particularchoice,whileconsideringsomewhatcontradictoryrequirements
• Ensurepropercollectionoftaxesforincomegeneratedatsource
• Avoidovertaxationofcertainactivitieswhencomparedtootherindustries
• Selectivelyprovideexemptionstofacilitateinvestmentininfrastructureand
promoteadoptionbyend-users
5
Two opposing positions can be identified in terms of digital taxation
policy
Objective
Rationale
Maximize
collections from
flow of digital
goods and
services
Lower tax burden
on trade of digital
goods and
services
• Need to capture
revenues from
the exponential
growth in trade
of digital goods
and services
• Reduce the cost
of purchase and
use of digital
goods and
services to
stimulate
adoption
6
Distortive taxation regimes in the digital economy affect the choices
made by market agents
Distortion dimensions
Impactondigitaleconomy
Consumers,particularlythose § Over-taxationofdigitalgoodsandservices
constraintsconsumeradoptionbyincreasing
thatarepricesensitive,limit
affordability
theadoptionofthegood
Firmsreducetheirrateof
investmentininfrastructure
§ Taxationofbroadband equipmentpurchasing
reducesdeploymentandcoverage
Differenttaxregimescreate
asymmetries
§ Globalinternet playershavealowereffective
taxratethantelecommunicationsoperators
§ Theratesatwhichtaxesarecollectedinthe
digitalsectorarehigherthaninothersectors
§ Thetelecommunicationssectorisaffectedbya
largenumberofspecifictaxeswiththe
potentialofgreatlyaffectingagentbehavior
Taxationofproductionand
consumptionofdigitalgoods
• Undefinedtaxationregimesfordigital goods
leadstosubstantialrevenueleakage
7
By increasing the total cost of ownership of wireless services, higher
consumption taxes raise the affordability barrier and reduce adoption
TAXBURDENAND3GPENETRATIONIN
SELECTEDLATINAMERICANANDASIAPACIFICCOUNTRIES(2013)
TAXBURDENAND3GPENETRATIONIN
Figure 6
EUROPEANCOUNTRIES(2013)
3G penetration growth is slower in countries with a higher tax burden
3G penetration growth
(CAGR)1
75%
Bulgaria
Lithuania
50%
Serbia
Latvia
Estonia
Belgium
Czech Republic
Germany
Switzerland
25%
Slovakia
Netherlands Finland
Poland Norway Denmark
France
Slovenia
Portugal
Romania
Sweden
Austria
Italy
UK
Spain Ireland
Hungary
Greece
0%
10%
15%
Central and Eastern Europe
1
20%
25%
30%
35%
40%
Tax burden
(% of average price per minute)
Western Europe
3G penetration growth as a percent of population when comparing the fourth quarters of 2009 and 2012
Sources: Eurostat 2013, Wireless Intelligence 2013; A.T. Kearney analysis
Source:A.T.Kearney(2013)
Sources:ITU;Katz
Authors
Florian Dickgreber, partner, Düsseldorf
[email protected]
Jonatan Matsson, principal, Stockholm
[email protected]
8
Direct taxes – Annual property levies and sales taxes on equipment
purchasing – imposed on ISPs have a negative economic impact
IMPACT OF TAXES ON BROADBAND NETWORK INVESTMENT
Annual
property taxes
on network
equipment
Increase in
broadband
network
deployment
costs
Initial sales
taxes on initial
network
equipment
purchases
Reduction in
broadband
network
deployment
NORTH DAKOTA
Negative impact
on economic
growth
SOUTH CAROLINA
7.00%
180.00 7.60%
120.00
6.00%
150.00
100.00
5.00%
120.00
4.00%
7.20%
80.00
6.80%
90.00
3.00%
60.00
2.00%
1.00%
0.00%
2006
2007
2008
2009
2010
60.00
6.40%
30.00
6.00%
0.00
5.60%
40.00
20.00
0.00
2006
2007
2008
2009
Sales Tax Rate for Wireless & Wireline
Sales Tax Rate for Wireless & Wireline
Investment Per Capita Wireless & Wireline
Investment Per Capita Wireless & Wireline
2010
9
Taxation asymmetry exists when there is a disparity in firm
contribution across the digital ecosystem
TAX CONTRIBUTION (EFFECTIVE TAXATION RATE) (%) (2014)
Contribution
WORLD
Digital Operators
Telecommunications
Operators
Equipment
Manufacturers
Terminal
Manufacturers
20.78 %
28.37 %
19.12 %
23.24 %
• Facebook
• Twitter
• Google
• Skype
• Netflix
• Claro
• Telefónica
• Millicom
11.78 %
EMERGING
MARKETS
Sources: author
•
•
•
•
•
•
•
•
•
•
•
Facebook
Twitter
Google
Skype
Netflix
Mercado Libre
Netshoes
Despegar
Taringa
B2W
Linio
• Cisco
• Ericsson
• Alcatel-Lucent
• Huawei
33.24 %
•
•
•
•
•
•
•
•
•
•
•
•
•
Claro
Telefónica
Entel Chile
Oi Brasil
TIM Brasil
Personal
Millicom
ICE
Antel
CNT
Entel Bolivia
Digicel
CANTV
14.14 %
•
•
•
•
Cisco
Ericsson
Alcatel-Lucent
Huawei
• Apple
• Samsung
15.19 %
• Apple
• Samsung
• Nokia
10
An elimination of tax on digital technology use could prove
economically beneficial – Emerging Market case
§ Assumptions:
• ImpactoffixedbroadbandonGDPgrowthinSenegal:0.050%foreach1%increase
inpenetration(source:KatzandCallorda,2015)
• FixedbroadbandmonthlyretailpriceinSenegal:US$36.41(source:ITU)
• OveralltaxestobeaddedtotheretailpriceinSenegal:18%VATonGeneralGoods
andServices(source:ITU)
• FixedbroadbandhouseholdpenetrationinSenegal:6.23%(source:ITU)
• FixedBroadbandpriceelasticityinSenegal:2.66(source:TelecomAdvisory
Servicesanalysisfrommodelinpriorpages)
§ Currentsituation:
• Annualtaxcollectionpersubscriptionbornebyconsumers:US$78.65(calculated:
US$36.41*18%*12)
• Totalfixedbroadbandsubscribers:103,362(source:ITU)
• Totalannualtaxcollectionfromfixedbroadband:US$8,128,966 (calculated)
§ Impactofeliminatingtaxesonbroadband
• TotaltaxeslosttotheTreasury:US$8,128,966 yearly(US$162,579,320in
perpetuityvaluewitha5%discountrate)
• Reductionoftotalcostofownership:US$6.55monthlyperhousehold
• Increasedhouseholdpenetration:From6.23%to9.22%
• ImpactonGDPgrowth:2.40%(US$354,960,000)
11
An elimination of taxes on purchasing of broadband equipment
use could also prove to be economically beneficial – United States
case
§ Assumptions:
• ImpactofsalestaxrateonnetworkinvestmentinUS:everydecreaseof1%inthe
averagesalestaxrateonpurchasedequipmentresultsinanincreaseintotal
telecommunicationsinvestmentpercapitaof$0.85(source:modelinpriorpage)
• EconomicImpactofnetworkinvestmentinUS:each1%increaseinpenetrationyields
0.014%inGDPgrowth,and-0.075inunemploymentgrowth(source:Katz,etal,2015)
• AnnualtelecommunicationsnetworkinvestmentinUS:US$31.8billion;US$20.97
billionsubjecttosalestaxofanaverageof4.02%(source:FCC)
§ Currentsituation:
• TotalannualcollectionfromsalestaxesonpurchasedequipmentinUS:US$1.39billion
Impactofeliminatingtaxesonbroadbandequipmentpurchase
• TotaltaxeslosttotheStatesTreasuries:US$1.39billion
• Investmentincreaseinnetworkdeployment:US$1.48billioninthefirstyearand$3.13
billionannuallyinsubsequentyears(“stimulusmultipliereffect”)
• Increasedbroadbanddeployment:634,000newbroadbandlines
• ImpactonUSGDPgrowth:US$7.24billioninthefirstyearaftertheinvestmentincrease
andUS$33.13billionofoutputoverthreeyears(directandindirect)
• Jobcreation:53,000newjobsinthefirstyearaftertheinvestmentincreaseand243,000
overthreeyears(directandindirect)
12
A set of answers to the issue questions raised above can be
formulated based on the evidence provided
Issue
Conclusion
Whatistheproperleveloftaxation
forpurchasingofwirelessservices?
§ Ifthepurposeistomaximizepenetration,thelowestpossibletaxrate;taxexemptionsgeneratemore
economicbenefitsandultimatelyrevenuesthanlosses
Whatistheappropriatelevelof
taxationoncapitalequipment
purchasedbytelecommunication
operators?
§ Salestaxesonpurchasedequipmenthaveanegativeimpactonnetworkdeploymentand,therefore,on
broadbandeconomicimpact
§ Governmentsshouldcarefullyconsidertheenactmentoftaxexemptionssimilartothoseconsideredfor
developmentofcriticalindustries
HowshouldInternetsalesbetaxed?
§ Noeasyanswersinthisarea
§ TaxationofgoodssoldovertheInternetshouldbeconsideredinlightofthebenefitstoconsumersimpliedin
atax-freeenvironment
§ Ontheotherhand,notaxesforgoodspurchasedovertheInternethaveapotenhaldistorhonvis-à-vis
physicaldistributionchannels
Howshouldconsumptionofdigital
goodsbetaxed?
§ Thisisanevolvingpolicydomain
§ However,iftheobjectiveistoprotectnationaldigitalindustries,notaxationofglobalplayersofferingdigital
goodshasapotentialdistortionaryeffect
Shouldtheconsumerpurchasing
wirelessdevicesandpersonal
computersbetaxed?
§ Iftheobjectiveistomaximizeadoptionofdigitalaccessdevices,theevidencepointsoutthattax
minimizationfostersincreasedadoption,whichinturnresultsinlargeeconomicgains,whichcompensatefor
theforegonetaxrevenues.
Shouldtheprovidersofdigital
platformsbetaxedatthecountry
whererevenuesaregenerated,or
shouldtheybeallowedtotake
corporatetaxexemptionsincertain
locations?
§ GlobalplatformshavebeenthepreeminentdriversofInternetadoptionthroughouttheworld,with
significantindirectcontributionstothedevelopmentofthedigitaleconomy
§ Whilethecurrenttaxregimemightbeasourceofasymmetrywithinthedigitalsector(parhcularlyvis-à-vis
telecommunicationoperators),governmentsincountrieswithemergingmarketeconomiesneedtocarefully
assesstheconvenienceofmovingintothisdomain,whichmightentailariskinhamperinggrowthoflocal
demandandusage
13
Taxation of digital goods and services should be approached
preventing any erosion of their economic impact
§
§
§
Taxationcanhaveadetrimentalimpactondigitizationgrowthandultimatelyon
economicdevelopment
• Onconsumptionofdigitalgoods
• Onequipmentandotherproductioninputs
Balanceshort-termrevenuegenerationandlongtermsupportofinnovationand
economicgrowth
• Imposing“luxurytaxes” onsmartphonesandtabletsdoesnothaveany
redistributiveimpact
• Importdutieshavenoclearimpactinprotectingdomesticindustries
• Sectorspecificpoliciesmaybedistortive
Thedesignofanefficienttaxstructureinthedigitalspaceneedstoconsider
threerequirements
• Ensurepropercollectionoftaxesforincomegeneratedatsource
• Avoidovertaxationofdigitalactivitieswhencomparedtootherindustries
• Provideselectiveexemptionstofacilitateinvestmentininfrastructureand
promoteadoptionbyend-users
14
15