Why an International Tech Firm Should be Taxed and Tariffed Like Any Other Multinational
Surfing the Internet around the world is often an exercise in homogeneity. With the exception of China and a few other countries restricting Internet access to certain sites, every country in the world popularizes the same website and Internet services. Facebook is used by people around the world in dozens of different languages to connect with friends, while Google and Wikipedia are nearly unanimous as the first sources of knowledge. On the mobile phone, the likes of Uber and Tinder have provided people in all countries with similar services, despite different on-the-ground conditions.
In their ubiquity, these Internet services, founded a mere decade ago and globalized only in the last few years, are no different from the previous wave of multinational firms conquering world markets. Coca-Cola managed to get even the most remote of Tanzanian villages hooked on carbonated sodas, while Toyota keeps even the most economically isolated rebels mobile with second-hand pickup trucks. In both waves of globalization, internationally-minded executives were able to get their products and brand names accepted by people around the world, cutting through diversity of economic conditions and cultural norms.
However, there is one thing that is remarkably different between an Internet firm like Facebook and a manufacturer like Coca-Cola getting their products into the global market. In the case of Coca-Cola, getting sodas to market is especially an exercise in advanced logistics. For the villager in remote Tanzania to drink a Coke, it involves multiple layers of producers, distributors, and retail outlets. Linking them are transport providers and local marketeers who can get products recognized and placed in every locale. For every bottle of soda sold, a massive local supply chain must be put in place.
The same is completely unnecessary for Facebook. To reach rural Tanzania, it only needs to localize the service into Swahili and provide some sort of business development service for local advertisers. That can be done with a staff hired in San Francisco. To get people to access the website on their phones and computers, Facebook can just piggyback off the local Internet service providers, who might even advertise Facebook for free in bids to attract more customers. All in all, Facebook does not need to have a single staff located in Tanzania to get millions of users and dozens of advertisers in the country.
The ability of Internet firms like Facebook to acquire foreign markets without local physical presence gives an enormous advantage over manufacturers like Coca-Cola and Toyota. To produce and transport their products, Coca-Cola and Toyota need to pay plenty of taxes. Tariffs on imported materials, registration costs of local subsidiaries, income taxes on locally hired staff, and property taxes on local outlets all increase operational costs and eat into the margins of selling in remote locations. A website like Facebook does not have to pay of that costs because it is an entirely foreign entity with a foreign website accessed remotely.
Yet, while the likes of Facebook pay no taxes in locations where it has no physical presence, it is profiting off local customers all the same. Tanzanian advertisers can still purchase ads on Facebook to specifically target Tanzanian users, and user data acquired in the country can still be used by Facebook staff for analyses. If anything, given the sheer scalability of Internet firms that need no physical investments to acquire millions more in user base, the successful monetization of that user base can bring additional profits to the firm much faster than anything remotely possible for the average manufacturer like Coca-Cola.
Thought this way, it is no surprise that valuations of Google and Facebook have long surpassed those of traditional multinationals like General Electric, McDonald's, Toyota, and Coca-Cola. The ability to profit globally without the need to handle the costs of local physical presence give today's tech firms unhindered ability to dominate global markets and crash local competition. Lack of restriction on the Internet means there is little ability for governments to enact policies that protect local Internet firms in the same way many use tariffs to protect local producers of agricultural and manufactured products.
For the sake of policy consistency, then, it would be wise for governments to consider some sort of "cyber-tariff." For any foreign site like Facebook to operate, it should pay "operational taxes" to the local government. Only then would there be a levelling of treatments handed to foreign manufacturers and tech firms. Foreign tech firms that refuse to make the tax payments may have their accesses restricted, much like how the Chinese government handles foreign tech firms at the moment, While such concept fundamentally goes against the philosophy of the Internet as a free, international space, it is necessary to ensure all countries can have equal opportunities to benefit economically from the global tech firm.
Of course, the proposition to tax foreign websites is not an easy one to implement. There are thousands upon thousands of websites and mobile apps in the world, and for a small country with little tech industry of its own, the vast majority of tech resources available are of entirely foreign nature. If firms refuse to acquiesce with tax payments, the government may very much subject its population to a complete Internet blackout. Yet, as global Internet giants become more and more dominant across all countries, figuring out a solution to this problem would become more and more necessary.
In their ubiquity, these Internet services, founded a mere decade ago and globalized only in the last few years, are no different from the previous wave of multinational firms conquering world markets. Coca-Cola managed to get even the most remote of Tanzanian villages hooked on carbonated sodas, while Toyota keeps even the most economically isolated rebels mobile with second-hand pickup trucks. In both waves of globalization, internationally-minded executives were able to get their products and brand names accepted by people around the world, cutting through diversity of economic conditions and cultural norms.
However, there is one thing that is remarkably different between an Internet firm like Facebook and a manufacturer like Coca-Cola getting their products into the global market. In the case of Coca-Cola, getting sodas to market is especially an exercise in advanced logistics. For the villager in remote Tanzania to drink a Coke, it involves multiple layers of producers, distributors, and retail outlets. Linking them are transport providers and local marketeers who can get products recognized and placed in every locale. For every bottle of soda sold, a massive local supply chain must be put in place.
The same is completely unnecessary for Facebook. To reach rural Tanzania, it only needs to localize the service into Swahili and provide some sort of business development service for local advertisers. That can be done with a staff hired in San Francisco. To get people to access the website on their phones and computers, Facebook can just piggyback off the local Internet service providers, who might even advertise Facebook for free in bids to attract more customers. All in all, Facebook does not need to have a single staff located in Tanzania to get millions of users and dozens of advertisers in the country.
The ability of Internet firms like Facebook to acquire foreign markets without local physical presence gives an enormous advantage over manufacturers like Coca-Cola and Toyota. To produce and transport their products, Coca-Cola and Toyota need to pay plenty of taxes. Tariffs on imported materials, registration costs of local subsidiaries, income taxes on locally hired staff, and property taxes on local outlets all increase operational costs and eat into the margins of selling in remote locations. A website like Facebook does not have to pay of that costs because it is an entirely foreign entity with a foreign website accessed remotely.
Yet, while the likes of Facebook pay no taxes in locations where it has no physical presence, it is profiting off local customers all the same. Tanzanian advertisers can still purchase ads on Facebook to specifically target Tanzanian users, and user data acquired in the country can still be used by Facebook staff for analyses. If anything, given the sheer scalability of Internet firms that need no physical investments to acquire millions more in user base, the successful monetization of that user base can bring additional profits to the firm much faster than anything remotely possible for the average manufacturer like Coca-Cola.
Thought this way, it is no surprise that valuations of Google and Facebook have long surpassed those of traditional multinationals like General Electric, McDonald's, Toyota, and Coca-Cola. The ability to profit globally without the need to handle the costs of local physical presence give today's tech firms unhindered ability to dominate global markets and crash local competition. Lack of restriction on the Internet means there is little ability for governments to enact policies that protect local Internet firms in the same way many use tariffs to protect local producers of agricultural and manufactured products.
For the sake of policy consistency, then, it would be wise for governments to consider some sort of "cyber-tariff." For any foreign site like Facebook to operate, it should pay "operational taxes" to the local government. Only then would there be a levelling of treatments handed to foreign manufacturers and tech firms. Foreign tech firms that refuse to make the tax payments may have their accesses restricted, much like how the Chinese government handles foreign tech firms at the moment, While such concept fundamentally goes against the philosophy of the Internet as a free, international space, it is necessary to ensure all countries can have equal opportunities to benefit economically from the global tech firm.
Of course, the proposition to tax foreign websites is not an easy one to implement. There are thousands upon thousands of websites and mobile apps in the world, and for a small country with little tech industry of its own, the vast majority of tech resources available are of entirely foreign nature. If firms refuse to acquiesce with tax payments, the government may very much subject its population to a complete Internet blackout. Yet, as global Internet giants become more and more dominant across all countries, figuring out a solution to this problem would become more and more necessary.
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