The new threat of Internet Tariffs

Apr 11, 2019

Governments are adopting or considering adopting new policies that will charge tariffs at the border on large portions of the Internet, including video calls, cloud computing, streaming video and music, e-Books, mobile phone apps, and social media. These policies could also give governments new powers to seize and inspect private digital files, such as medical and financial records. The red tape and costs associated with these policies will create significant burdens for individuals and companies of all sizes in nearly every sector of the global economy.

Since 1998, countries have agreed not to impose “customs duties,” or tariffs, on electronic transmissions based on an agreement among all World Trade Organization (WTO) members.  This agreement, known as the “moratorium on customs duties on electronic transmissions,” has helped keep calls, digital music and movies, social media and the rest of the Internet safe from border taxes, burdensome customs procedures, and government control.

Recently, however, several countries have taken steps to undermine the Moratorium.  India and South Africa proposed “a re-examination of the implications of the moratorium.”  Other countries like Indonesia have taken concrete first steps to place tariffs on “intangible goods” – an undefined category that “can be interpreted broadly…to include any types of applications, software, video, audio, e-book, etc.”

Indonesia’s policy not only introduces the possibility of new tariffs, but would open up internet content to inspection and audits by government customs and tax authorities. Internet tariffs would require importers to submit a “Digital Declaration” to the Customs Authority every single time a digital product is sold over the internet from abroad and allow governments to monitor and inspect electronic transmissions.

This issue is not limited to Indonesia.  The World Customs Organization (WCO), a standards-setting body, is exploring ways that national customs authorities could increase their role in the taxation and regulation of products and services supplied over the Internet. The WCO has gone so far as to suggest that governments should develop new capabilities to monitor the contents of electronic transmissions, including via “big data mining (for example by analyzing websites and social media)” and by pursuing information from electronic platforms, Internet Service Providers and payment gateways to gain details on the nature of each cross-border electronic transmission.

If the WCO and countries are successful in this endeavor, it would fundamentally threaten the open internet. These internet tariffs are taxes on internet transactions and would provide customs authorities around the world the authority to look at the contents of software, proprietary company data, social media, search history, streaming services, electronic wallets and much more.

In Indonesia, for example, the country’s customs authorities could gain access to the contents of digital transmissions because of new requirements for companies to file a “Digital Declaration,” which is set to include personal information such as Name, Address, Country of Origin, Description of Goods, Tariff Code, Customs Value, and a certification that the company is liable for the accuracy of the information. These “Digital Declarations” would be subject to inspection and audit by government customs and tax authorities.

Internet tariffs could require local businesses to file an import declaration every time they utilized a new email or cloud service function, bought a new app, or enabled their connected machines to communicate with the Internet.  The compliance burden would be crushing for any local business, let alone a small business or start-up.

Jake Colvin is Co-Founder of the Global Innovation Forum