Of course you could, at the moment, immediately write almost all of them off again. What can you spend e$ on? Information: retrieving this article as a reminder of the argument, for example. Or doing a Web search for all pages mentioning "tax" and "e-cash". Such searches may be free at the moment, but don't bet on them staying that way when advertisers start to push inflated Web rates down...

If you'd done that search in early April 1996, the very first item to show up would have read: "Anguilla Internet Business Services Ltd can provide you with everything necessary to startup [sic] and operate a business over the Internet from Anguilla. Anguilla is a zero-tax jurisdiction." Someone's ahead of you.

But why go to the trouble of setting up in Anguilla, unless you have a burning desire to pay $4000 down, $500 a month and 5% of sales to a bunch of offshore lawyers? Your e-cash exists only in cyberspace. Probably -- but this is a very big question for the net in 1996 -- it's entirely anonymous.

On the one hand, electronic commerce as it exists now conjures a nightmare of total surveillance. In the US, where the middle classes often only carry cash to have something to give the muggers, vast amounts of information on people's transactions is held in credit card computers.

American Express, for one, is investing in neural network technology to try to decide who's going to buy what big-ticket item next. If you use an Amex card to pay for "What Cruise?" magazine and a Concorde ticket, don't be surprised when the cruise companies come knocking on the door.

On the other, a very strong privacy lobby is likely to ensure that e-cash is to some large extent private (see "Two versions of the future"). The prospect of some hacker (or tax inspector) asking precisely why a bachelor MP was ordering condoms at precisely 02:13 on February 29, 1997 may win this lobby some support. In any case, if the privacy lobby doesn't like whatever turns out to be "official" e-cash, it can always build its own -- though that raises some interesting questions about exchange rates.

So: your work involves producing goods and services which can be sold directly over the net, and within a very few years a large part of your income is in e- cash. You don't actually know how much of it is "exports" -- in the sense that the person buying your wares is officially a resident of another state. In any case, some of your wares were distributed from a server in Finland, others from the USA and yet others from a mirror site in Australia. Some of the work you did in the UK, and some while on an extended visit to your sister in Bangalore. Some of the computer records which represent your e-cash balance are physically stored in the USA, and some in the Netherlands. And this is just the early stages.

It would seem that, if you followed the Real World model of financial reporting to the letter, you'd have to produce a mountain of paperwork. It'd be much easier to let your pile of e-cash remain virtual, from the Real World's point of view and the tax collector's. Even if the Inland Revenue understood what you were doing, it'd probably cost them more to track your activities than they could get from you.

Of course, since you work most of the time from home in the UK, you have an enormous phone bill to pay off. (You're thinking of moving to a more civilised territory where you pay for local calls like you pay for the internet, by the month rather than by the second, but that's another story.)

Neither BT nor Mercury yet accepts e$. So you convert some of your e$ into pounds sterling to pay them. At this point you have a transfer into your Real World bank, and you have to declare it as taxable income -- and then, of course, write most of the phone bill off as a business expense. For the moment, you pay for food, housing and entertainment out of your remaining Real World income.

You foresee a time in the not-too-distant future when almost all your income is in e$. At that point, you'll practically be able to decide your taxable income. You could become an ascetic nerd, whose Real World expenditure is limited to rent, food, fuel and telecommunications.

In any case, the entertainment you and yours find in cyberspace is tax-free; but when you get screen fatigue and run screaming to the pub or club, you not only have to pay VAT and sin taxes, but also have to convert some e$ into taxable pounds. Of course, you leave your savings in e$: you're already exploring cyberspace investments.

Your few remaining colleagues who have the benefits of employment have always had an irrational jealousy of the supposed freedoms of self-employment. But now they have more cause to be jealous: all their income remains taxable. Their employers are raking in the e$ from your colleagues' work; but their employers are very likely to be multinationals, and they've been shunting profits electronically to the most "tax-efficient" location for decades.

For the new class of net-entrepreneurs, as for the multinationals, progressive taxation of income is a thing of the past. The whole idea of (at the most cynical) maintaining social stability by taxing higher incomes more, to provide a safety-net for the poorest, is now in trouble for technological as well as for political reasons. Since the poorest and their children are excluded from being net-entrepreneurs by the cost of the hardware they need just to learn what it's all about, this looks like a recipe for an unholy social mess, to say the least.

Rather than trying to chase down every last e$, governments with a social conscience would do better to re-think the basis of taxation. (Governments without a social conscience are going to have to find a way to pay the army, anyway.) As things stand, taxes on expenditure are by and large regressive -- in that poorer people end up paying a larger share of their income in tax than richer. But it shouldn't be beyond the wit of humankind to devise a progressive system -- and then to deal with the "presentational questions" of consequences like a 70% VAT rate on Mercs.

And if that hasn't got the tax people in a tizzy, there's the little matter of Artificial Intelligences. How long will it be before they start earning money in their own right -- at which point the argument over whether they're truly intelligent may fall to utilitarian considerations? They will have Real World expenses -- rent, fuel and telecommunications. But luxury taxes are likely to leave them unmoved, at least until they figure out a way to go clubbing.

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Written 4 April 1996

An edited and doubtless thus improved version of this article appeared in Internet Today.

This version is © copyright 1996 Mike Holderness; moral rights are asserted.