COLLEGE STATION - As a federal commission begins discussing possibly taxing online commerce, a Texas A&M University marketing professor cautions against rushing to regulate Internet-based business.
Manjit Yadav, who has studied the evolution of electronic commerce - or E-commerce - into a mainstream business practice, believes taxing online sales or other regulation of the Internet could create more problems than it solves, including hampering the medium's development.
"If this medium's growth is impeded by some taxation policy that is short-sighted, the full potential of the Internet will not be realized," said Yadav, who this coming fall begins teaching a new MBA course on strategic issues related to marketing on the Internet.
"I would advocate an approach in which the newly emergent industry is allowed to grow without regulatory impediments," he continued.
Many state and local governments across the nation fear that allowing companies to sell goods and services online without collecting sales taxes will deprive them of a valued source of revenue, which could hamper their abilities to provide services to their residents. Businesses also are concerned about potential loss of revenue to competitors with the advantage of offering tax-free sales to customers worldwide.
On June 21, the congressionally appointed Advisory Committee on Electronic Commerce began discussing whether and how to regulate companies conducting business via the Internet.
But Yadav says that leaving matters as they are would allow the marketplace to resolve any questions about how large a threat, if any, the Internet poses to the tax structure and traditional businesses.
"Over time as the landscape of this industry becomes clear to business
people as well as to policymakers, I believe some solutions will become apparent, and they are likely to be market-driven solutions," he said. "If the market solutions are not emerging or if there are some clear imperfections in those solutions, then a regulatory intervention may become necessary."
At present, Yadav said, Internet sales account for a relatively small portion of the nation's commerce and therefore do not pose a major threat to existing businesses or to state and local governments' tax base.
Recent estimates put the Internet's economic impact at approximately $300 billion per year, which Yadav calls "a relatively small part of the overall business landscape."
"It sounds like a lot of money and it is. But you have to compare that against the backdrop of a $6 trillion or $7 trillion U.S. economy," he observed.
Yadav likens the Internet in its present state to radio in the early 1900s, when many advocated imposing local taxes to support the many new stations. A rationale then was that radio offered a general benefit to the population, but strong opposition from the many Americans who did not own radios led to the movement's defeat, he said.
Eventually, advertising became the principal source of revenue for broadcasters. Rushing to impose sales taxes or other regulations on the Internet, Yadav believes, could severely limit the medium's capabilities.
"I believe the Internet, to attain its full potential, has to be allowed to define itself in its own way," he said. "My concern is that we do not prematurely curtail the growth of this medium. At some point, perhaps, an appropriate and suitable taxation policy should be developed but we should not act in haste."
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Contact Gerard Farrell, 409/845-4645; e-mail [email protected]. For additional story ideas concerning Texas A&M, please visit our web site at http://www.tamu.edu and click on "News."
6/25/99
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