The iPod Tax

October 12, 2005

Governments tend to not let any new technology go too long without trying to get its hands on the money it generates. Such is the case in Japan where the government is considering a tax on the popular iPod. From ABC News:

A Japanese government committee is mulling a copyright law revision to charge royalties on digital music players, but the opinion is so divided on the so-called “iPod tax” that it isn’t likely to be imposed, officials said Wednesday.

Japan already levies an extra fee for copyrights on gadgets sold in stores such as mini disk recorders that consumers can use for home copying of music. That charge, generally 3 percent of the product’s wholesale price, is included in the price tag so most shoppers aren’t even aware they’re paying it.

Since last year, recording companies and other lobbies here have been grumbling that the same system should be applied to recording devices with hard-drives, including MP3 players like Apple Computer Inc.’s iPods as well as possibly flash-memory players.

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As the article further explains, this tax tends to violate many of the core principles of sound tax policy, especially the likelihood that fair enforcement would be difficult and the fact that this tax is highly discriminatory against a specific industry. Taxing a specific industry like portable recording devices merely because taxes are already in place for its “old” competition and thus to make the market “fair” leads to a continual game of catch-up for tax policy makers as new technologies constantly emerge.

The best policy would be for governments to not impose special taxes on certain industries, but rather a broad based tax that all industries pay, where “specific” taxes would only be imposed in those cases where special government services disproportionately benefit that narrow group of producers.


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