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Taxing Free Software
Jarek Sygitowicz writes "Lets look backward: nearly a month ago. One officer taxed 6 GNU/Linux
boxes and two Star Offices at the price of 6 Microsoft Windows and 2
Microsoft Offices. The affair was widely commented and stirred a wave
of protests. We heard from various sources that the Government, trying
to patch a big hole, is preparing for the impossible: a tax on using
Free Software." Sounds crazy? For now this is true only in Poland (which, btw, has the coolest tld, even if they have a messed up tax system ;)
Well, I don't know anything about Polish Law. But I can see how this might happen: where there are VAT or other taxes on property/transfers, then some sort of fair market value must be used for the taxation. A common method of tax evasion is undervaluing the property.
The Polish tax official obviously thought that Linux and StarOffice were at least as good as MS-Windows and Office. As you going to dispute his good judgement? So they were worth as much, and should be taxed as much.
This is not an easy dilemma for free software to solve. The concept of something good for nothing sounds impossible to many people. Tax officials read that impossibility as tax evasion.
Well, I don't know anything about Polish Law. But I can see how this might happen: where there are VAT or other taxes on property/transfers, then some sort of fair market value must be used for the taxation. A common method of tax evasion is undervaluing the property. (emphasis mine).
Well, this brings up an interesting point. What you buy when you "buy" software is the right to use the software. The market value of that right, like any other good, depends on the balance between its utility and scarcity.
Normally, people are willing to pay more for something with greater utility, but this ignores scarcity. Nothing has more utility than air but you can't very well tax that as it has no market value. I suppose it should not be surprising, but it is ironic that license agreements actually increase the market value of software by decreasing its utility. That is by restricting user rights to redistribute in particular, the owners of the software create scarcity where none naturally exists.
So, this isn't a case of Grandma's diamond ring (which coincidentally has practically no utility) which has a market value equivalent to more or less similar rings. Free software has no market value, although it has great utility. Like the air, it is in abundant supply and so it is free (as in gratis) despite its utility.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Since prostitutes charge for sex, and married people get sex for free, they should pay a tax on sex, based on what prostitutes charge.
A year or 2 ago, I ordered a few RedHat 6.2 CD's from www.lsl.com, I live in Canada, and when they arrived, I was charged $30 duty on them, the assesed value of the CD's was $220 a piece, even I only paid $2 each for them. This is not a new thing, they have been doing it for awhile here...
...there aren't that many well-reasoned responses here that are actually opposed to this nonsense.
Several people have pointed out that this has been predicted in "Free For All" and elsewhere, which is nice, but what to do about it? Some pointed out that taxation of real estate is based on perceived valuation if the property were sold -however, real estate is the only property treated this way in most places I know of.
Certainly Microsoft and other commercial software companies will put pressure on governments to do this sort of thing, as it will hurt the popularity of free software, and yes perhaps charging $0.01 for the license is one way around this... And, yes, it's Poland's own business but frankly the world is getting smaller and we owe it to ourselves and our friends in Poland to - as the first international political force with easy real-time communications among us - band together and oppose all governmental and big-business activities that threaten the society we wish to have on the Internet.
So, some issues seem to be getting ignored here.
One problem is that this poses a huge threat to the free exchange of ideas, especially if applied to the university setting (though students and universities are often given tax breaks)... MANY in the R&D community thrive on free software, and much of it has been written by researchers and hackers for community use based on a barter-like notion of roughly equal contribution from the community (in the form of patches, suggestions, bug reports, publicity, etc.) in return for use. It may thus be necessary to codify this into licenses: anyone who contributes to the software in any ways listed by the author are considered to be "creators" of the software and can not be taxed for using their own creation. Contributions could include applying the system to novel uses and reporting this back, promoting the system for use by others, etc. which would cover some end-users, too.
The government (in Poland in this case) is denying software creators the ability to set the valuation of their own software. If the government gets involved in price-fixing for taxation purposes, the competitive nature of the market that is allegedly a crucial part of the caplitalist system is undermined. If Microsoft and others can't provide value that makes their software worth more than $0 software, that's their problem. To get around this argument a government would need a complex system of taxation based on value to the enterprise using some pre and post installation performance metrics of the task being performed with the program and its value to the organization. Basing the tax on the price of "competing" products is government-assisted price collusion. Furthermore, it ignores the fact that there are reasons why commercial software costs money that do not apply to free software: centralized support, guarantees and warranties and some coherent - and monied - organization to sue if needed, etc. The value of the products is likely not actually the same if anything but a naive economic view (or a purely technical view of the operations of the software) is taken.
This kind of taxation is a kind of protectionism for large software corporations, and threatens to undermine the quality of software and stifle competition as people will come to expect governments to enforce the prices of software, and even commercial companies with competitive pricing can be hurt in such a scenario. Basically, everyone will be expected to charge the same price for their software or otherwise turn-over a larger portion of their profits to the government. Commercial organizations and free software developers alike would cringe at the thought of the government making more money than they do off their work - basically it seeks to undermine the community spirit that built the movement and force commercialization (and a fixed pricing regieme) in the industry, as well as to limit price competitiveness. It actually *encourages* price collusion and other anti-capitalist measures.
The Polish government is taking an outdated view of taxation which will be hard for governments to shake: that goods are the cornerstone of taxation. The US is already a service-based economy, so the US is quite happy to tax support services, installation services, etc. which can come with free software.
It is taxing a form of free speech, which I suspect the Polish constitution has provisions for because (having read part of it) it seems somewhat modeled on the US constitution... Basically, software, like books or music, is a form of creative expression. If I write a book and give it to you for free, if the government decides it's as entertaining as a $30 Steven King novel, should they be able to go and tax you for a $30 purchase you never made? It both forces you to consume, and stifles the ability of authors to freely distribute their ideas.
Finally, it undermines the licensing contract and thus any claims Poland could have to upholding such contract law. Basically, it gives the government the power to rewrite commercial contracts at will to suit its "needs"...
o/~ we are pissed, we are pissed, we have to resist... o/~ - ec8or