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A distinguishing characteristic of the bit tax is that the entire burden of collecting and remitting the tax is borne by the carrier company. It can be argued that carrier companies possess the necessary technical and labour resources to effectively perform such a function. But, who, in the final analysis, will shoulder the bulk of the tax burden or incidence? Will carrier companies absorb the cost, or will they pass it onto consumers? If carriers choose to pass the costs onto consumers (a reasonable assumption it appears), will they do so in a non-neutral manner because carriers lack the means to accurately separate e-commerce from non-e-commerce data flows? With a bit tax, there could also be problems with enforcing compliance on the part of carrier companies. Without a central international regulatory agency to oversee the carriers, there would be difficulties in ensuring that companies collect the correct amount of tax and accurately allocate the funds to the designated governments.
More problematically, he comments that a bit tax fails a basic principle of taxation because
it would discourage electronic transmission of information. Economic resources would be wasted through efforts to minimize the 'bit tax'. Further, it would also be counterproductive in that it burdens e-commerce and its productivity. For example, software companies might continue to ship magnetic tapes and cartridges rather than use the more efficient method of transmitting the data electronically.
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