Thursday, November 6, 2014

Why Taxing The Internet Is Stupid

By Matthew Hughes
In this life, two things are certain. Death and taxes. But, there’s a new proposed tax from Hungary that’s surprising everyone. Internet traffic could soon to be taxed, with the additional cost of a gigabyte to set Hungarian Internet users back 150 HUF (About €0.5, $0.61).
This has caused an uproar. The law — which is perceived by many as a way for the government (increasingly regarded as authoritarian) to surreptitiously control the Internet — has caused thousands of Hungarians to take to the streets in protest. Even the EU is upset.
The Hungarian government has made overtures that this tax will be capped at 701HUF for home users, with ISPs expected to pick up the rest of the tab. Although, nothing is certain. Should the tax be capped, it’s reasonable to expect ISPs to pass the costs of complying with this law on to the consumers through hidden charges and higher bills.
This Internet tax is one of a kind. No other government — let alone a democratic member of the European Union — has ever conceived of taxing the Internet by the gigabyte. But if this law came to your country, what would it mean for consumers and businesses?

It Reduces What You Can Watch

More and more millennials are cutting the cord and ditching cable, as streaming options become more desirable. There’s no set-top-box required. No expensive monthly subscriptions. You don’t even need to be in your living room. You can watch your favorite TV programs and films from anywhere.
But that only works because it’s extremely cheap to receive data. If you live in any Western country, you can laze about and watch Netflix all day without having to worry about the cost.
hungary netflix   Why Taxing The Internet Is Stupid
But with Hungary’s proposed Internet tax, a 3GB Netflix HD movie will end up costing about €2 (about $2.5 USD). A full-length film in ultra-high 4K resolution is about 34GB in length, which would cost around €16 to stream.
In a country where the average monthly wage hovers around $600, this quickly becomes prohibitively expensive.
So, the end result is viewers get less choice in the films, documentaries and TV shows they consume. They would start switching to traditional broadcast media which would remain affordable. Obviously, broadcast TV lacks the democratic and participatory dimensions of YouTube, as well as the choice and instant availability  of Netflix.

You Destroy Your Startup Scene

There’s a reason why Australia is spending billions of dollars in a ‘National Broadband Network’. There’s a reason why the government of Chile actively issues special visas for entrepreneurs looking to relocate their tech companies. And there’s a reason why the government of Germany invested €150M in startups in 2013 alone.
Because, for the most part, any investment in a digital economy pays for itself, in terms of taxes paid and jobs created.
As a result, lots of countries are eager to attract startups. Want to alienate your startup community and send businesses and human talent fleeing abroad? Tax the one thing they absolutely need to work.
hungary startup   Why Taxing The Internet Is Stupid
After all, if a programmer cannot affordably work from home, or a designer cannot cheaply send large RAW and PDF files to their clients, then why should they stay?
This cannot be understated in the case of Hungary, which is part of the European Union. Hungarian citizens have the freedom to live, work and move to any other EU country, so there’s absolutely nothing that forces them to stay. Annoy your taxpayers and your innovators, and they’ll vote with their feet.

It Disproportionately Impacts Parents And The Poor

We’ve all heard the stories. You know what I’m talking about. Parents who left their iPhones in the care of their pre-teenaged children, only to get a mammoth bill for in-app purchases. The problem is so bad, Apple has started refunding in-app purchases made without parental consent. When you’re young, a ‘gigabyte’ and money are two very abstract concepts. It’s hard to make a connection between what you do online, and how that could impact the bank accounts of your parents.
Now, let’s imagine you’re a parent living in a country where the Internet is heavily taxed. Suppose you go away for a couple of hours, leaving your twelve year old alone to while away his afternoon watching videos on YouTube.
hungary laptop   Why Taxing The Internet Is Stupid
You might not understand how ‘big’ a YouTube video is. You might be completely computer illiterate. You might even be a parent living on a single income. But that won’t matter. You’ll still have to pay the massive tax bill that will ensue from your offspring’s YouTube-a-thon. Does that sound fair to you? Me neither.
An Internet tax would also disproportionately impact the poor. Those on low incomes would be forced to radically change their Internet consumption patterns. For the first time ever, an Internet user would have to think ‘can I afford to click this link?’ prior to visiting a web page. This could potentially leave things like streaming video, online gaming and social networking as a preserve of the wealthy.

It Entrenches Incumbents And Destroys Innovation

My favorite thing about the Internet is how it shakes up industries that are desperately in need of being disrupted. Good ideas are adopted, and ideas that no longer serve a purpose are discarded.
Examples of this are plentiful. You’ve got the traditional taxi industry which is slowly but surely being replaced by Uber (a better, often cheaper alternative). Traditional landline phones are in decline, as VOIP technology is adopted by an even larger swathe of the population. And the traditional, mainstream media is being replaced by a vibrant, unfiltered alternative media with the courage to take on stories that CNN and the BBC won’t. None of this could have happened without near-universal, fast, affordable access to the Internet.
hungary innovation   Why Taxing The Internet Is Stupid
Now, do you think this Internet tax will benefit those who are disrupting industries sorely in need of being disrupted? Do you think that added taxation on the Internet would result in more innovation, rather than less? Unlikely.

This Law Is Dumb

I’m a writer by trade. It’s what I make my living in. I should be able to come up with something witty and eloquent to describe the unedifying, unfathomable stupidity of this law.
But I can’t.
So, I’ll just say it as it is. This law is dumb. This law is stupid. This law is short-sighted. This law will unfairly impact the poor. This will raise the cost of Internet access in an increasingly digital-centric age. This will send Hungarian startups fleeing to Paris, Berlin and Tallin.
It’s just dumb. Really, really dumb. But what do you think? Let me know. Comments are below.
Image Credit: Gil C /

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