A Tax on Data?

February 4, 2013

French Info TaxIn a recent report developed by the French government, one of the policy proposals published for consideration is implementation of a tax on data.  Although a potentially lucrative source of revenue for government, a data tax is a troubling idea which has the potential to cause significant future problems.

The report identifies data as the key “raw material” of the entire economy in the online age.  As an essential asset, the report suggests that parties who use that asset for commercial gain should pay a tax to the national government in exchange for the right to use the data.

As described in the report, all organizations that collect data online in France could be taxed.  Data covered by such a tax could include a wide range of material, including information regarding individual Internet users and their online activities, as well as commercial information associated with business relationships and transactions.  Such a tax would be directed toward large and small online service providers.  No specific tax rates are identified in the study.

The French government is reportedly seriously considering implementation of the data tax option.  Its interest in the idea seems to be largely spurred by the need to find additional revenue sources and by its frustration that the world’s largest online companies generate noteworthy revenue by conducting business in France but currently pay very little tax in the country.

The French data tax concept appears to be based on the premise that information is a form of property.  As property, the French government seems to be open to the notion of applying a tax to transfer of that property in a manner similar to taxes it applies to conveyance of other forms of property.

Characterization of information as property for tax purposes sets a troubling policy precedent.  If information is property, then the owners of that property have substantial authority to limit access to the property.

Restrictions on access to information can have significant adverse consequences for the economy and for society, as a whole.  Although information in the digital age undoubtedly has some of the attributes of traditional property, it is also at the core of effective communication.

To the extent that sharing of information plays a vital role in economic efficiency and development of an open social and political order, policies that treat information as property can have adverse effects.  Those policies can serve as barriers to the effective sharing of information, and such barriers can undermine the potential benefits associated with modern information and communication technologies.

Although it is understandable that the French government would consider a wide range of potential new revenue sources, a broad data tax is not a good idea.  Policies that have the potential to impede information access should be viewed with great caution and skepticism, and should not be adopted without full review and consideration of all likely consequences.