Cyberspace - final frontier for EU taxman

A revolutionary new "information tax" on television, faxes and use of the Internet is being examined by the European Union.

An EU working party is attempting to establish how much revenue could be generated from a "bit tax", charged on the transmission of "bits" of digital information.

Professor Luc Soete, chairman of the EU's high-level experts group, claims the new tax would transform the economies of member states. "The global way we can consume is undermining our national consumption taxes, and we should therefore move into other directions and find new tax systems," he says in an interview tonight on BBC 2's The Net programme. "The idea is to start with a 'bit tax'. You charge a small amount, a cent of a dollar for every megabit."

Tax collectors across Europe are concerned that they are being increasingly bypassed as global transactions and purchases of information are made with new technology. Under a bit tax, every fax transmission, telephone call, use of the Internet or use of digital television could be logged and taxed.

Among those who have been involved in the debate is Professor Ian Angell, of the London School of Economics. He said that huge amounts of tax revenues were being lost as traditional forms of trading were abandoned.

Forecasts for revenues from both VAT and income tax are not being attained. The US estimates that $3bn (pounds 1.8bn) has been lost as American consumers make Internet purchases from mail order companies.

Professor Angell said: "Bit tax is one of the targets of the taxman to somehow drag back some of the tax base he has been losing in cyberspace. You have got cross-border data flows which are bypassing VAT.

"The EU has been discussing this and Customs and Excise have been looking at it. I gave a talk to Customs last year and they said they were looking at the feasibility of a bit tax. They are obviously very worried that the tax base is being reduced."

Professor Angell believes, however, that there would be great difficulty in introducing such a tax because so much transmitted data does not have any commercial value.

Neil Barrett, author of The State of the Cybernation, said the demand for the bit tax was being fostered by the growing trade in services, music, software and other goods over the Internet - "hence the requirement to move away from value added [tax] in association with tangibles to the proposed idea for a bit tax which would be based on a purely intangible tax on quantity of information".

Some companies, who have learnt of the talks are deeply concerned. Chris Wise, of Ove Arup and partners, said his company transmitted 90 million megabits of data a year - a potential pounds 1m tax liability.

According to Professor Soete, the bit tax is designed to boost the economy not hinder it. "The purpose is to raise additional revenues which are in line with the emerging information society and to put it back in the economy on those production factors which are now being overtaxed and reducing competitiveness."

A spokesman for Customs and Excise said the department was keeping a watching brief. "If Brussels comes up with something we will obviously be interested. We will be interested in seeing what is in the best interests of the UK."