Keep the Internet Tax-Free

WASHINGTON, DC – When you spark one of the largest protests in Eastern Europe since the fall of communism, you know that you have stirred up the electorate. That is exactly what the Hungarian government did when it recently proposed an “Internet tax” of 50 euro cents ($0.62) per gigabyte. More than 100,000 protesters gathered in Budapest, furious at the political symbolism of the tax and its very real economic impact. Prime Minister Viktor Orbán’s government quickly backed down.

Hungary’s proposed tax was absurd – akin to assessing fees on reading books or charging people to have conversations with friends. But the proposal, even if discarded (though Orbán has hinted that he may bring it back in another form), remains worrisome, because it is part of a disturbing trend. A large number of countries have introduced taxes and tariffs that hamper the adoption and use of information and communications technology (ICT). All together, 31 countries – including Turkey, Brazil, and Greece – add 5% or more to the cost of ICT, on top of standard value-added taxes.

In Hungary, the proposed tax would have been particularly onerous, because it would raise the cost of mobile data by 5-15% and have an even bigger impact on fixed broadband subscriptions. For the young and the poor, it would be a significant burden. A cap of €2.30 per person, hastily proposed after the initial public outcry, and before the proposal was withdrawn, would have done little to ease that burden on low-income Internet users, while drastically reducing the program’s overall revenue.

As the protesters in Budapest pointed out, the proposed tax is wrong for Hungary. It is wrong for other countries, too. Cash-strapped governments adopt these taxes because ICT goods and services are an easy target for revenue authorities. In addition, they are sometimes mischaracterized as luxury products – as if the Internet has not become central to peoples’ lives.