Japan Spikes the iPod Tax

December 5, 2005

It’s hard to think of anything that would raise the ire of urban commuters more than a tax on the beloved iPod.

Japanese lawmakers recently were dealt a sharp lesson in the power of popular opposition to bad tax policy when a proposal to tax digital music players—popularly dubbed the “iPod tax”—unleashed a firestorm of public opposition, ultimately forcing lawmakers to abandon the idea. From the New York Times:

A plan to charge an “iPod tax”, or royalties on portable digital music players, unraveled late last week after a Japanese Government committee failed to reach agreement on the measure.

Japan’s recording industry has been pushing for the new tax since the explosive success of Apple’s iPod began about two years ago. The industry says it needs the fees to compensate for sales lost to home copying and file-sharing. The tax would add from 2 per cent to 5 per cent to the retail price of portable players.

The proposal would cover players that store songs on memory chips and hard-disk drives, two types of recording media pioneered in the iPod. Japan already charges similar royalties on older recording devices such as compact-disc recorders.

The proposed tax has drawn broad attention in Japan, where the committees that help set government policy tend to be stacked with industry insiders who work for corporate interests at the expense of consumers.

In response to intense public criticism of the proposal, the Agency for Cultural Affairs, which chooses the members of the Government committee, took an unprecedented step: it filled the committee with university professors, copyright lawyers and other experts, instead of recording industry executives.

Last week, after a year of debate, the committee concluded it could not reach a consensus on supporting the proposal, says Hiroyuki Suzuki, a spokesman for the agency’s copyright division. Without consensus, the committee had to reject the proposal, he says.

Opponents on the committee had argued that charging the fees would amount to charging consumers twice, since they already pay royalty fees to the recording industry when they buy music at stores or online.

For many in the tax policy world, there’s a growing realization that the days of selective excise taxes as reliable revenue sources are numbered. In a world of falling transportation costs and rising global markets, it’s easier than ever to avoid selective excises, and harder than ever to collect them.

Better to rely on more broadly based general tax systems, which raise revenue efficiently, and avoid the political pitfalls of lawmakers having to pick economic winners and losers in the marketplace.


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