Why Taxing The Internet Is Stupid

Matthew Hughes 29-10-2014

In this life, two things are certain. Death and taxes 7 IRS Website Tools That Could Save You Time and Money Here are a few online IRS tools for U.S. citizens diligently slaving away over their taxes. They make your job a lot easier. Don't give up just yet. Read More . But, there’s a new proposed tax from Hungary that’s surprising everyone. Internet traffic could soon to be taxed, with the additional cost of a gigabyte to set Hungarian Internet users back 150 HUF (About €0.5, $0.61).


This has caused an uproar. The law — which is perceived by many as a way for the government (increasingly regarded as authoritarian) to surreptitiously control the Internet — has caused thousands of Hungarians to take to the streets in protest. Even the EU is upset.

The Hungarian government has made overtures that this tax will be capped at 701HUF for home users, with ISPs expected to pick up the rest of the tab. Although, nothing is certain. Should the tax be capped, it’s reasonable to expect ISPs to pass the costs of complying with this law on to the consumers through hidden charges and higher bills.

This Internet tax is one of a kind. No other government — let alone a democratic member of the European Union — has ever conceived of taxing the Internet by the gigabyte. But if this law came to your country, what would it mean for consumers and businesses?

It Reduces What You Can Watch

More and more millennials are cutting the cord and ditching cable Cut That Cord! How to Ditch Cable If you've read about the cord-cutting phenomenon but aren't sure where to start, this is a guide to cutting the cord and ditching cable TV for good... Read More , as streaming options become more desirable. There’s no set-top-box required. No expensive monthly subscriptions. You don’t even need to be in your living room. You can watch your favorite TV programs and films from anywhere.


But that only works because it’s extremely cheap to receive data. If you live in any Western country, you can laze about and watch Netflix The Ultimate Netflix Guide: Everything You Ever Wanted to Know About Netflix This guide offers everything you need to know about using Netflix. Whether you're a new subscriber or an established fan of the best streaming service out there. Read More  all day without having to worry about the cost.


But with Hungary’s proposed Internet tax, a 3GB Netflix HD movie will end up costing about €2 (about $2.5 USD). A full-length film in ultra-high 4K resolution is about 34GB in length, which would cost around €16 to stream.

In a country where the average monthly wage hovers around $600, this quickly becomes prohibitively expensive.


So, the end result is viewers get less choice in the films, documentaries and TV shows they consume. They would start switching to traditional broadcast media which would remain affordable. Obviously, broadcast TV lacks the democratic and participatory dimensions of YouTube, as well as the choice and instant availability  of Netflix.

You Destroy Your Startup Scene

There’s a reason why Australia is spending billions of dollars in a ‘National Broadband Network’. There’s a reason why the government of Chile actively issues special visas for entrepreneurs looking to relocate their tech companies. And there’s a reason why the government of Germany invested €150M in startups in 2013 alone.

Because, for the most part, any investment in a digital economy pays for itself, in terms of taxes paid and jobs created.

As a result, lots of countries are eager to attract startups. Want to alienate your startup community and send businesses and human talent fleeing abroad? Tax the one thing they absolutely need to work.



After all, if a programmer cannot affordably work from home, or a designer cannot cheaply send large RAW and PDF files to their clients, then why should they stay?

This cannot be understated in the case of Hungary, which is part of the European Union. Hungarian citizens have the freedom to live, work and move to any other EU country, so there’s absolutely nothing that forces them to stay. Annoy your taxpayers and your innovators, and they’ll vote with their feet.

It Disproportionately Impacts Parents And The Poor

We’ve all heard the stories. You know what I’m talking about. Parents who left their iPhones in the care of their pre-teenaged children, only to get a mammoth bill for in-app purchases What Are In-App Purchases & How Can I Disable Them? [MakeUseOf Explains] "I can’t believe it!" my cousin said to me the other day, "someone’s just bought a $10 in-app purchase on my mother’s phone, and she doesn’t even know what I’m talking about!". Sounds familiar? How... Read More . The problem is so bad, Apple has started refunding in-app purchases made without parental consent. When you’re young, a ‘gigabyte’ and money are two very abstract concepts. It’s hard to make a connection between what you do online, and how that could impact the bank accounts of your parents.


Now, let’s imagine you’re a parent living in a country where the Internet is heavily taxed. Suppose you go away for a couple of hours, leaving your twelve year old alone to while away his afternoon watching videos on YouTube.


You might not understand how ‘big’ a YouTube video is. You might be completely computer illiterate. You might even be a parent living on a single income. But that won’t matter. You’ll still have to pay the massive tax bill that will ensue from your offspring’s YouTube-a-thon. Does that sound fair to you? Me neither.

An Internet tax would also disproportionately impact the poor. Those on low incomes would be forced to radically change their Internet consumption patterns. For the first time ever, an Internet user would have to think ‘can I afford to click this link?’ prior to visiting a web page. This could potentially leave things like streaming video, online gaming and social networking as a preserve of the wealthy.

It Entrenches Incumbents And Destroys Innovation

My favorite thing about the Internet is how it shakes up industries that are desperately in need of being disrupted. Good ideas are adopted, and ideas that no longer serve a purpose are discarded.

Examples of this are plentiful. You’ve got the traditional taxi industry which is slowly but surely being replaced by Uber What Is Uber and Why Is It Threatening Traditional Taxi Services? Uber has landed, and it's fundamentally changing inner-city transit. And some might say, not entirely for the better. Read More (a better, often cheaper alternative). Traditional landline phones are in decline, as VOIP technology is adopted by an even larger swathe of the population. And the traditional, mainstream media is being replaced by a vibrant, unfiltered alternative media with the courage to take on stories that CNN and the BBC won’t. None of this could have happened without near-universal, fast, affordable access to the Internet.


Now, do you think this Internet tax will benefit those who are disrupting industries sorely in need of being disrupted? Do you think that added taxation on the Internet would result in more innovation, rather than less? Unlikely.

This Law Is Dumb

I’m a writer by trade. It’s what I make my living in. I should be able to come up with something witty and eloquent to describe the unedifying, unfathomable stupidity of this law.

But I can’t.

So, I’ll just say it as it is. This law is dumb. This law is stupid. This law is short-sighted. This law will unfairly impact the poor. This will raise the cost of Internet access in an increasingly digital-centric age. This will send Hungarian startups fleeing to Paris, Berlin and Tallin.

It’s just dumb. Really, really dumb. But what do you think? Let me know. Comments are below.

Image Credit: Gil C /

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  1. Jim Smith
    November 7, 2014 at 9:16 pm

    Sorry to disillusion you, but your comment that included the words, "free healthcare and a fire engine" is ludicrous. Maybe if you had said "free to you" or free because other people are paying for it, I could buy it.. All services cost money, the only difference comes when you uncover the curtains to show who is paying the bills. Unfortunately, for services "provided by politicians", the answer is ALWAYS US, and I mean the taxpayers who pay taxes to the government entity which is "buying" the votes by providing, (I mean giving away), the services provided by the taxpayers for the entire population, usually, but of late, even certain segments of the populace are on the gravy train, whilst the remainder are on the "dish it out" train. Actually, to be accurate, that is how it has always been, all you have to do in politics is "follow the money" for an eye-opening revelation.

    Most of your article is right on the money, no pun intended, I was only referring to the comment you made early on to another poster. I would agree with fee based taxation IF and only IF the local government provided a very high bandwidth unlimited connection with static IP for those who want/need it. They could take lessons from that movie with the great line, "If you build it, they will come!".

  2. Tom S
    November 4, 2014 at 3:21 am

    It's absolutely asinine, but there would be one silver lining - class actions against spammers could prove *real financial harm*, and maybe the massive amounts of bandwidth they use would disappear.

  3. Vinny B
    November 3, 2014 at 8:03 am

    Left in the middle if this is a good idea or a dumb idea I just want to remind you on the following things:

    We had the same discussion when the VAT came. Why should we pay extra to the government. for stuff I buy for any merchant that in his turn pays already tax to that same government. That is Tax on Tax! The only thing is that it was not that spread out as today's discussion as we did not have the internet.

    Another thing is the road or traffic taxes: They are used (they say) for maintenance of the roads (or is it?). As the government doesn't own the internet (in most countries) this argument fails. But as government; Who cares as long as I get money.

    So; the government creates a tax because they need money. If not with this tax then they surely will find another way to make you pay. We all complain about it but in the end we'l get used to it

  4. Konti
    November 2, 2014 at 3:05 pm

    Very dumb and short-sighted!
    When I was a young student, research was very slow, tedious, and restricted. Nowadays, students have a wealth of information at their fingertips; thanks to the Internet.
    Taxation would hinder all progress.

  5. Lee T
    November 1, 2014 at 7:28 pm

    Then you might as well tax people for breathing. Taxing the amount of times you inhale and exhale. The tax is just plain dumb. We already pay tax on our internet use every month. Adding more tax on an service that is already taxed, is always passed down to the consumer no matter how you look at it.

    • Prateek Kumar Singh
      November 2, 2014 at 7:04 pm

      "In Time" says it all.

    • Vrya McTaggart
      November 4, 2014 at 2:44 pm

      In Australia we had a government which introduced a 'breathing' tax. (We breathe out Carbon Dioxide) It was called a carbon tax. They said: 'no carbon tax' and then, guess what, it came in. Well they were subsequently voted out on exactly this issue. The same politicians though also began a fibre optic rollout for high speed Broadband but at a 40 billion cost! So, in the words in a recent movie, 'something bad, something good, bit of both' is probably apt for any govt even intergalactic ones. Governments, even good ones, can step over the tax line from a symbiotic to a parasitic relationship. We pay GST on our internet packages. Symbiotic. Tax for data units, parasitic. It's a hard call. Govts always lust for money, it covers their mistakes and makes them appear fiscally clever. Until it all goes wrong. aka Greece.

  6. Saikat Basu
    November 1, 2014 at 3:19 pm

    Well, somebody got the message.

    Hungary Drops Internet Tax Plan After Surge of Protests

  7. Bart
    November 1, 2014 at 11:44 am

    Imagine this law being introduced in the 90's, but per MB...

    • Jessica
      November 2, 2014 at 7:16 pm

      That is a horrifying thought, especially because they're not going to scale the taxes back once people start using gigabytes and terabytes of internet.

      It's one thing to introduce tax, but a whole other thing to get rid of one.

  8. Eric Sonfay
    October 31, 2014 at 1:55 pm

    It's a pity that you fail to mention what the original intention of the government was with this tax. In Hungary ISPs and telecom companies in general make a huge profit which then they pump out of the country. Their profit rates are much higher there than in Western EU because there is much less competition. The proposed (and cancelled) tax would have been paid by these companies - not the users, the government never wanted to tax the users!

  9. Rob
    October 30, 2014 at 6:03 pm

    Nice article, Matt. I just want to reiterate my sentiments that I posted on Apptous (to play devil's advocate)- is there ANY possible situation where you could see a levy on internet usage as legitimately permissible? You didn't mention WHY the government is making this decision (any useful links?), but in some strange world, perhaps this MIGHT just be the only option they have... as I said- devil's advocate here, I too agree that it's entirely dumb.

    • Matthew Hughes
      October 30, 2014 at 8:57 pm

      Internet usage? No. Could I find myself agreeing with a flat (read: sales) tax on Internet packages? Yes.

      Thanks for your comment man!

    • Rob
      November 3, 2014 at 12:19 pm

      You never answered my questions much ;)

  10. eric jay
    October 30, 2014 at 5:07 am

    im afraid that will happen here in the philippines, we've got a bunch of crook and corrupt govt officials add to that the monopolized telecommunications. its possible they'll think of this.

    • Matthew Hughes
      October 30, 2014 at 8:57 pm

      I hope not! The Philippines is an awesome country, with awesome people and a really vibrant tech scene. It'd be a shame if that was lost!

  11. John Dyer
    October 30, 2014 at 1:06 am

    Why is nobody putting taxes on the governments

    • Matthew Hughes
      October 30, 2014 at 8:56 pm

      Sorry John, not sure I get your point!

  12. dragonmouth
    October 29, 2014 at 11:09 pm

    Where is it written that Internet entertainment must be free? No other entertainment is. If you go to the cinema, theater, concerts, etc, you must pay. You must pay if you wish to obtain music on records, tape or DVD. You pay for hardcopy books, magazines and newspapers. Many countries charge for TV and radio. Why shouldn't they charge for Internet?

    • Anonymous
      October 30, 2014 at 6:45 am

      We all do pay for the internet in or monthly bill from our ISP. This taxation idea from Hungary is an insidious means of controlling the poor and restricting their access to education and other freedoms to better or entertain themselves whilst allowing the rich and privileged to carry on as if nothing had changed. Yes, this law is DUMB. The articled hit the nail on the head.

    • Matthew Hughes
      October 30, 2014 at 8:52 pm

      Hey Dragonmouth,

      Sorry pal, but I got to disagree with you. Taxing by the gigabyte is dumb. It just is.

      Could I see myself agreeing with a flat (read: sales) tax on Internet packages? Yes. We have that in the UK. I lived in Switzerland and France and I'm pretty sure my Internet packages there were subject to sales tax. That's fair.


    • dragonmouth
      October 30, 2014 at 10:07 pm

      Are you afraid of putting your name to your comments?

      You sound like a communist, talking about the "exploited" poor and class warfare. Next you'll be quoting Marx and Lenin.

    • dragonmouth
      October 30, 2014 at 10:28 pm

      @Matt Hughes:
      How is a sales tax any less dumb than "by the gigabyte" tax?! I agree with Howard that all taxes are nothing more than a protection racket run by governments. There is no moral justification for "We'll allow you to do so and so if you pay us x%"

  13. Frans de Jonge
    October 29, 2014 at 9:28 pm

    It's as if when you mention even rather moderate Internet use easily approaching 200 GB per month,* all the crazies come out of the woods to state that really your average user should be fine with just a few gigabytes. Oh, and that IPTV from your ISP really shouldn't be counted as data use just because the ISPs don't either, because when you say that the average person supposedly watches over 3 hours of television a day. In 720p, that'd be at about 8 Mbit for a slightly better quality than you get from YouTube… Anyway, my estimate is that your average person easily burns through at least 500 GB/month if only it were counted the way it should be. I suppose Netflix isn't too eager to take ISPs to court over stuff like that, but I kind of hope they will.

    For the first time ever, an Internet user would have to think ‘can I afford to click this link?’ prior to visiting a web page.

    Nah, I had those same thoughts back on dial-up and for mobile Internet (especially roaming costs were utterly absurd). Although it wasn't the act of downloading that gave me any second thoughts, "merely" stacking up the minutes.

    * And that's with rather low-quality YouTube videos…

    • Matthew Hughes
      October 30, 2014 at 8:53 pm

      Really? Dial-up in Belgium/Holland was charge by the data transferred? Crazy. In the UK, it was just by the minute.

      But yeah, this law is dumb. Thanks for your comment man. Much appreciated.

    • Frans de Jonge
      October 30, 2014 at 9:46 pm


      There's no reply button on your reply? It's true that dial-up was by the minute, so it's not quite the same thing. However, whether you're watching very low-res Real video (remember that? xD) or whether you're downloading a shockingly huge 30 MB program, I find there are definite similarities in user experience.

  14. Michail Drakomathioulakis
    October 29, 2014 at 8:32 pm

    Sorry, Howard, but taxation in necessary for any state to exist and operate. The problem is that usually taxation is not fair enough, and some (perhaps all) governments abuse the rights they have.

    • Howard Pearce
      October 30, 2014 at 1:44 pm

      Michael, if you want to believe in necessary theft, that is ok with me ..... But regardless of whether you believe it is necessary, it will always remain theft.

    • Michail Drakomathioulakis
      October 30, 2014 at 1:57 pm

      Would you mind to explain me how firemen, policemen, cost guard men, street cleaners or other people serving in some kind of public service/ agency will be paid if not by taxation?

    • Matthew Hughes
      October 30, 2014 at 8:55 pm

      Agree, Michail. Thanks for your comment.

    • Howard Pearce
      October 30, 2014 at 9:40 pm

      Michael , that is a separate question . If you want to forgive the crimes a person commits based upon what he does for you, well, that's your decision I guess.

      But as far as I am concerned murder remains murder and theft remains theft regardless.

    • Michail Drakomathioulakis
      October 30, 2014 at 10:23 pm

      Would you mind to answer that separate question? For as lons as we have societies organised in states and markets that use money, I don't see an other way for the state to operate but taxation. Again, I do recognise that in most parts of the world taxation isn't fair enough ; governments and parliaments and senates (how-ever are called in each country) abuse their rights, for they represent the interests of given groups in societies, depending on their social power in a specific moment or period. By the way, I really believe that the Hungarian idea to tax internet isn't only stupid from an economic point of view, but also dangerous, from a freedoms/ social point of view.

  15. Howard Pearce
    October 29, 2014 at 5:28 pm

    The simple fact is that all taxation is nothing more than legalized state theft ... even when you include the concept of "theft with representation" :)
    Any time anyone wants my money, they have to ask me .... not my community. And if they think I owe them money, they have to work it out with me or take me to court.

    So apart from being stupid, taxation is immoral too unless you are the state, I guess .

    • NotoriousZeus
      October 30, 2014 at 12:34 am

      You Sir summed it up just right. Amen

    • Matthew Hughes
      October 30, 2014 at 8:54 pm

      Not sure I agree with you, Howard. Last time I got mugged, the guy who stole my phone didn't give me free healthcare and a fire engine.

    • Howard Pearce
      October 30, 2014 at 9:37 pm

      If he had, would that have made his act not theft ?

    • dragonmouth
      October 30, 2014 at 10:16 pm

      @Howard Pearce:
      While I agree with you in principle, how else, other than through taxes, is the government supposed to pay for the services it provides for its citizens? Or would you like to be responsible for those services yourself? Michail is right, the problem is that governments get tax-happy.

    • Howard Pearce
      October 31, 2014 at 12:28 pm

      Like I have said several times, if that is supposed to be an excuse for dismissing a wrongful action because of your belief that it is necessary, then I suppose many things could be justified based upon what any person thought necessary.

      Like other services, I oppose all coercive monopolies where the entity maintains its status thru force (legal or otherwise). I support a free market for government.

  16. Doomstar64
    October 29, 2014 at 5:17 pm

    I have heard of some stupid stuff before, but this snipes the top of the pole. The law sounds like something a member of the goverment came up with at a drinking party while playing poker. I can hear it now, "Hey guess what, Flush and know what else lets make a law that will cause more issues then good, drinks on me. "

    • Matthew Hughes
      October 30, 2014 at 8:55 pm

      Yeah, it's pretty stupid.

      Thanks for your comment man!

  17. Samol
    October 29, 2014 at 4:38 pm

    I compare this to taxing walking. A utility we must pay for at the end of each month. Maybe a bracelet on your ankle to record how far you walked. The internet is our way of life now. How can you justify taxing it.

    • Matthew Hughes
      October 30, 2014 at 8:56 pm

      Well, people voluntarily pay $1 for a bottle of water. Why not for walking? ;)