The reference by Telecommunications Minister Renee Webb to a possible tax on Internet transactions sparked a debate here in Bermuda that's healthy. However I suggest it's probably not relevant.

Of course there are those who believe it will kill Bermuda's attempt to leverage its tax-free status and become an Internet hub. Then there's the practicality of collecting such a tax on an electronic venue that's hard to track.

The tax debate is currently raging in the US. Accounting firm Ernst & Young estimated that US states were unable to collect about $170 million in sales taxes in 1998. The loss is only one-tenth of a percent of total state and local government sales tax collections in the US. Ernst & Young concluded that tax revenues were "minimally affected'' by electronic commerce.

The release of the report was timed to coincide with the start of hearings by a US federal commission studying electronic commerce tax policy. Officials at the 19-member Advisory Commission on Electronic Commerce said the growth of business over the Internet could erode tax bases in the future. The threat certainly is there. The balance to be found is fostering electronic commerce while continuing to collect taxes to support basic services such as education and police services.

In the US the Supreme Court has ruled that one state cannot force another state to collect taxes on its behalf. So you have the vision of growing tax competition internally in the US, in the EU, and other places with differential tax rates within their borders, and internationally.

The US Congress has imposed a three-year moratorium on new E-commerce taxes until the panel issues its report in April 2000.

Since an Internet tax in Bermuda would be an extra source of revenue rather than an attempt to ensure Government's revenue base (from customs duties, on salaries, fees and licences) isn't eroded, there is no pressing need to investigate such a measure. Especially since Electronic commerce in Bermuda will be mainly from businesses on the Island to businesses and consumers off the Island. Consumers in Bermuda buying goods over the Internet will presumably still pay customs duty.

Prediction and quote of the week: Michael Bloomberg of Bloomberg News has predicted that most of the Internet commerce companies and their popular stocks won't survive according to a report by Associated Press. Mr. Bloomberg, speaking in Singapore, said Internet stock trading was like the art market in that prices were based on whim and publicity rather than on concrete value or earning potential.

"If you want to look at a regular stock you go to either a financial analyst or an economist,'' he said. "If you want to value Internet stock, you go to a psychologist or publicist.'' What are the companies that are currently making money on the Internet? Research company eMarketer found that big already existing companies like Intel and Cisco Systems come out tops in electronic commerce. The research firm said such companies are currently making from $6 to $10 billion of their revenues on the Web a year, mostly from business-to-business transactions. The lesson is that such companies enjoy the same advantages online that they do in the real world -- name recognition, experience in dealing with customers, and money for advertising.

The top seven e-commerce revenue are all technology companies and in order of earnings on the Internet are Intel, Cisco, Dell, 3Com, and IBM. Networking company 3Com has stated it plans to conduct 80 percent of its business-to-business transactions over the Web by December and save $100 million a year. Dell, which started in the electronic commerce in 1997, is selling $14 million computers a day from its Web site and expects half its $18.2 billion in annual revenue to come from the Internet by 2001.

Amazon.com and MSN Expedia Travel, two companies solely based on the Internet, have annual sales in the $1 billion range but have no profits to show.

Other factoids: Sixty-eight percent of US Web users shop online. The most popular purchase is books, then software and music.

US businesses have lost about $7.6 billion from computer virus attacks in the first half of 1999, according to research firm Computer Economics Inc. The estimated total was about five times larger than the amount lost during all of last year. The study was based on 185 companies representing 900,000 international users. The amount represented estimates for lost productivity and repair costs of computer systems damaged by virus attacks. The ExploreZip worm and Melissa virus caused the shutdown of some corporate computers and destroyed data earlier this year. No wonder Richard Parker of Applied Computer Technologies was dismayed to find that less than half of the businesses in a local survey last year said they had a network security system in place.

Tech Tattle deals with topics relating to technology. Contact Ahmed at techtattle ygazette.newsmedia.bm or 295-5881 ext. 248 or 238-3854.