Government to tax Digital Britain

The government is planning to raise millions of pounds through taxes on wireless and optical fibre networks. The move raises questions over its commitment to closing the widening "digital divide" that separates rich and poor, urban and rural Britons.

The government is planning to raise millions of pounds through taxes on wireless and optical fibre networks.

The move raises questions over its commitment to closing the widening "digital divide" that separates rich and poor, urban and rural Britons.

Thousands of firms such as Starbucks that now provide free Wi-Fi may have to start charging for connections or absorb the tax.

The Valuation Office Agency (VOA), which sets business rate taxes, has proposed a "next-generation access" tax of £7.50 per home connected via optical fibre.

The proposal is contained in Section 871 - Practice Note 2005 on the VOA's website.

The VOA is still consulting on how much to charge for wireless access points, but sources who have spoken to the VOA say a figure of £100 per access point has been mentioned.

Niall Murphy, CEO of The Cloud, the UK's second largest Wi-Fi network operator, said, "We have not been consulted by VOA on this. There is no official VOA consultation from what we can see."

He said most wi-fi access points are indoors in venues where people are already paying the relevant business or local authority rates for their location, and those public Wi-Fi access points that are outdoors on specifically rented property already pay relevant rates on the property rented.

Murphy said the UK had millions of Wi-Fi access points. "It is unclear how these would be differentiated, and why. If someone is using Wi-Fi on their broadband connection in their coffee shop to attract customers, adding an extra cost to this is only going to cause them to disconnect the service. Such a measure would seem to counter the objectives of  Digital Britain."

Tax uncertainty

A BT spokesman said initial queries in the organisation about the VOA's proposals on both wireless and fibre connections had drawn a blank.

The proposed £7.50 "fibre rate" is the same rate that the government levies on Virgin Media for the 12.5 million homes that could get its cable TV service, if they wanted.

BT said recently that it would double the number of homes with fibre connections to 2.5 million by 2012. This could result in a windfall of £18.75m per for the government.

But the biggest hit may be a tax on wireless connections. In August, BT announced it was halfway to its goal of a million wi-fi sites. The present 500,000 sites include hotspots provided by the BT FON wi-fi community, BT Openzone, 12 wireless city centres, plus BT Openzone hotspots via the BT Business Hub.

The Cloud, the next biggest Wi-Fi access provider, provides some 10,000 UK access points.

It is still not clear what kind of wireless access point the VOA would consider taxable. Companies that have replaced their wire-based telephone and data networks with in-building wireless networks, such as those provided with femto or pico cells, may find themselves liable for the tax.

Owners of community wireless networks, many of which run on a not-for-profit basis, may also be caught.

Companies that offer wireless access include Hilton, Thistle and Ramada Jarvis hotel chains, Caffe Nero and Starbucks coffee stores, as well as BA, Flybe and Skyteam airport lounges.

Users with home wi-fi networks might fall foul of the VOA if they allow others to use their connection. BT says 4.8 million consumer and business users have network minutes in their BT contracts.

Mobile phone network operators are already taxed on the number of masts and other equipment they use to deliver signals, so they may escape the tax.

Standard business tax

The VOA denied these are new taxes. It argued that most fibre to the home will replace copper cables, which are taxed. It could apply a similar argument to companies that replace their private branch exchange (PBX) systems with wireless PBXs.

A VOA spokesman said, "There has been no change in rating policy for wireless installations and any suggestions otherwise are wrong."

She said all business property is liable for rates, which are based on rental value. "Wi-Fi installations are not treated any differently to any other business property," she said.

She said the VOA has assessed more than 31,000 radio masts and valuation officers are working "proactively with Wi-Fi operators to ensure they have accurate information on all wi-fi sites".

Some four million people and 11% of homes do not cost-justify a broadband connection, according to the Digital Britain report. The government's digital inclusion champion, Martha Lane Fox, was unavailable for comment.

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