Opinion: Internet companies like Facebook should be taxed like MNCs

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Facebook is used all over the world to connect with friends. Google and Wikipedia can be considered as the first sources of knowledge online. Mobile apps like Uber and Tinder have successfully gone global with the services they offer.

In their ubiquity, these internet services, which were founded and scaled globally only in the past 10 years, are not different from the previous wave of multinational businesses that conquered world markets. Coca-Cola, for example, managed to get even the most remote of Tanzanian villages hooked on carbonated sodas. Toyota keeps even the most economically isolated rebels mobile with secondhand pickup trucks.

All of these companies were able to get their products and services into different markets, cutting through diverse economic conditions and cultural norms.

Foreign markets, taxes, and tariffs

However, there is one thing that is remarkably different between online companies and other MNCs in getting their products into the global market. In Coca-Cola’s case, it’s an exercise of advanced logistics. It involves multiple layers of producers, distributors, and retail outlets for the villagers in remote Tanzania to drink a can or bottle of Coke. Linking all of them are transport providers and local marketers who can get products recognized and placed in every locale. For every bottle of soda sold, a massive local supply chain must be put in place.

These are completely unnecessary for the likes of Facebook. To reach rural Tanzania, it only needs to localize the service into Swahili and provide some sort of business development service for local advertisers. That can be done with a staff hired in San Francisco. To get people to access the website on their phones and computers, Facebook can just piggyback off of the local internet service providers who might even advertise Facebook for free in bids to attract more customers. All in all, the social network does not need to have a single staff located in Tanzania to get millions of users and dozens of advertisers in the country.

The ability to profit globally without the need to handle the costs of having a local physical presence gives today’s internet companies an unhindered ability to dominate global markets and crush local competition.

The ability to acquire foreign markets without a local physical presence gives online companies an enormous advantage over manufacturers and other MNCs. To produce and transport their products, Coca-Cola and Toyota need to pay plenty of taxes. Tariffs on imported materials, registration costs of local subsidiaries, income taxes on locally hired staff, and property taxes on local outlets all increase operational costs and eat into the margins of selling in remote locations. On the other hand, a website does not have to pay those costs because it is an entirely foreign entity with a foreign website accessed remotely.

While the likes of Facebook pay no taxes in locations where it has no physical presence, it is profiting off local customers all the same. Tanzanian advertisers can still purchase ads on the social platform to specifically target Tanzanian users, and user data acquired in the country can still be used by Facebook staff for analyses. If anything, given the sheer scalability of internet firms that need no physical investments to acquire millions more in user base, the successful monetization of that user base can bring additional profits to the firm much faster than anything remotely possible for the average manufacturer like Coca-Cola.

If you think about it this way, it is no surprise that valuations of Google and Facebook have long surpassed those of traditional multinationals like General Electric, McDonald’s, Toyota, and Coca-Cola. The ability to profit globally without the need to handle the costs of having a local physical presence gives today’s internet companies an unhindered ability to dominate global markets and crush local competition. A lack of restriction on internet access means that governments do not have a strong ability to enact policies that protect local internet firms in the same way tariffs are used to protect local manufacturers.

‘Cyber-tariff’

For the sake of policy consistency, then, it would be wise for governments to consider some sort of “cyber-tariff.” Foreign tech company should pay “operational taxes” to the local government in order to operate in a foreign market. Only then would there be a leveling of treatments to foreign manufacturers and internet companies.

Foreign online firms that refuse to make the tax payments may have their accesses restricted, much like how the Chinese government handles foreign internet firms at the moment. While such a concept fundamentally goes against the philosophy of internet being a free, international space, it is necessary to ensure all countries can have equal opportunities to benefit economically from global internet businesses.

Of course, the proposition to tax foreign online companies is not easy to implement. There are millions of websites and mobile apps in the world, and for a small country with little tech industry of its own, the vast majority of tech resources available are of entirely foreign nature. If firms refuse to acquiesce with tax payments, the government may very much subject its population to a complete internet blackout.

Yet, as global internet giants become more and more dominant across the globe, figuring out a solution to this problem would become more necessary.