Joi Ito's Web

Joi Ito's conversation with the living web.

This evening was yet another surprising evening for me. After writing this morning about suing the tax office, this evening was my first day on the board of the National Tax Bureau's study group on IT and taxation. They served a yummy dinner which I mentally subtracted from the tax money they owed me... The irony of being threatened by some folks in the local tax office and being treated like an important expert by the head of the Tax Bureau was... ironic.

I kicked off the discussion part of the meeting with my opinion that the government should think of itself as a service and the taxes payment for those services. When you have a captive market, you forget that on one level, the citizens are your customers. When trying to think about how to tax stuff on the Internet, you have to think in terms of "how much value are we adding?", "what is it worth?", "how do we get paid?" It's probably better to think about the power law curve and marketing than to think about things in terms of the current tax framework.

My position is that consumption tax or a VAT tax should be levied since it is easier to track. Japan's consumption tax is only 5%. Dump all of those complicated taxes on things you can't track. Then provide services that you can charge for. If your services are not competitive, privatize them.

Many people think a national ID with a central record of all transaction are the way to go. I opined that a more distributed method that triggered payments on certain types of taxable transactions without tracking ID might work better and protect privacy.

Anyway, it was weird at the beginning, but turned out being a lot of fun seeing and thinking about things from the perspective of the Tax Bureau.


What sort of strange taxes do you have at the moment?

It should be easy to operate VAT in Japan. The problem with operating VAT in Europe is that you have under-reporting of income. As a result, in one country Belgium there are all sorts of strange rules about VAT and receipts. I don't think that would be such a problem in Japan.

Tracking transactions by ID is a really crap idea. There must be 400m transactions/day in Japan. That's 120 bn transactions a year. Leaving the moral aspects aside, what possible purpose could it serve to have a database of it all? All the tax office should be concerned about is collecting as much of the tax incurred as it can with as low an administrative cost as possible.

Hi there Joi,

I've noticed that you'll attend the ISC at St. Gallen this year. Sadly, I haven't spotted you on the speakers list. Will you give a speech anyway?

Since I'm a first semester at St. Gallen and I'd love to have the opportunity to hear more about the current situation of the Japanese state (including issues like the new ID and the taxation system) compared to other asian countries.

In our studies we now focus mainly on China when it comes to the asia-pacific region - which is interesting but a bit one-sided.


I THINK I'm a speaker. ;-) I was late in confirming so maybe that's why I'm not on the list. I will probably speaking about emergent democracy. I look forward to seeing you there.

Antoin. I agree with you about transactions. I'm trying to think of some sort of digital cash scheme where the digital cash itself sends part of the cash to some tax agency when it participates in a taxable event or something. That way you could have the ID's of the participants fairly anonymous and still collect tax. Kind of a "smart money" that looks like a piece of cash with a pre-paid duty on it or something... I'm wondering if there is some sort of distributed architecture which allows digital taxation without tracking ID's... Maybe there's a financial cryptography paper somewhere on this...

Antoin, I guess maybe the taxes aren't "strange" but you have all sorts of difficult to track taxes. Taxes on assets, a great number of different types of taxes on various types of income. (My dispute is that stock option capital gains have been treated as at least 4 different types of income by different tax offices with an almost 50% difference in the taxation rate depending on the category.)

But I suppose taxes in MOST countries are complicated.

Another problem is that the tax office REALLY cracks down on certain individuals, but seems to ignore famous tax loopholes. For instance, it is a well known trick used by many large corporations to buy derivatives at the end of the year to put their cash into off balance sheet securities and then convert them back again. (At least when they were making money. ;-0 ) The investment banks used to make a lot of money in Japan at the end of the year doing these transactions. I don't know if they still do this...

Well, I hope you will give a speech because at the moment I'm not a member of the ISC club which means i cannot enter the conference compound. But this will definately change next year...

Perhabs i can manage to 'bribe' someone to let me in...we'll see. Else, i have to stick to the streaming of the speeches ;-)

A good night from Switzerland,


As of last year, an acquaintance at Morgan Stanley said the year-end derivatives were still a big chunk of business for that operation. MS has several programs they present to businesses, showing them how to use derivatives "properly."