Software is a Product: Should We Tax Imported Code?

In an increasingly globalized world, software development has become a cornerstone of economic activity. Yet, while we impose import taxes on physical products crossing borders, software—a product in its own right—often bypasses such regulations. This creates a significant imbalance in how we perceive value creation and workforce distribution.

The practice of outsourcing software development to lower-cost regions has become a widespread business strategy. Companies leverage cheaper labor markets to develop complex applications, reducing costs while often sidelining local talent. While this makes financial sense in the short term, it raises pressing questions about long-term economic sustainability and fairness.

Should Software Be Treated as a Product?

At its core, software is no different from any other product. It requires raw materials (intellectual capital, talent, and tools), labor (developers, testers, designers), and distribution channels (cloud platforms, app stores). Despite this, software is often treated as a service or an intangible good, allowing it to move freely across borders without the tariffs applied to physical goods.

If we were to treat software as a product, companies importing software—or outsourcing its development—should be required to pay an import tax, just as they would for machinery or raw materials sourced internationally.

The Benefits of Software Import Taxes

1. Leveling the Playing Field Import taxes on software could incentivize companies to invest in their local talent pools. Instead of shifting workforces to cheaper countries, businesses would have to weigh the financial implications of outsourcing more carefully. This could stimulate local job creation, innovation, and economic growth.
2. Fair Distribution of Economic Value When companies outsource, they often benefit from the economic disparities between countries. Taxing imported software would ensure that some of this value is redistributed, supporting governments and communities that host the end-users of these products.
3. Encouraging Accountability Beyond economic benefits, taxing software imports could foster greater accountability for intellectual property, cybersecurity standards, and ethical considerations. Governments could use these policies to enforce compliance with regional regulations.

Counterarguments and Challenges

Of course, there are valid concerns to address. Critics might argue that taxing software imports could cripple innovation, increase operational costs, or create barriers for startups in developing countries trying to enter global markets. Additionally, defining what constitutes "imported software" could be complex, especially in cases of remote or hybrid development teams.

However, these challenges can be mitigated with thoughtful policies. For instance, tax structures could be tiered to account for the size and revenue of the companies involved, ensuring that small businesses and startups are not unduly burdened.

A Step Toward Workforce Sustainability

Ultimately, the question of taxing software imports boils down to values: Do we want to prioritize short-term cost savings or long-term economic resilience? Treating software as a product and taxing it accordingly could encourage businesses to localize operations, reduce workforce externalization, and create more sustainable ecosystems for talent development.

While the world becomes increasingly interconnected, fairness and equity should remain at the forefront of economic policies. If software is the product driving the future, it’s time we start treating it as such.

Fostering Local AI Development in Europe

Taxing software imports could have profound implications for the AI industry, especially in Europe. Today, the global AI race is largely dominated by countries like the United States and China, where massive investments in technology have created innovation hubs. Meanwhile, Europe risks falling behind due to a lack of unified strategies and reliance on imported AI solutions.

By treating software—and by extension, AI algorithms and systems—as taxable products, Europe could incentivize local development of AI technologies. This policy would encourage companies to establish R&D centers and invest in local talent within Europe rather than outsourcing to lower-cost regions.

The Need for Local AI Development

The demand for AI solutions in Europe is undeniable. From healthcare and manufacturing to logistics and public administration, industries are increasingly adopting AI to improve efficiency and decision-making. However, much of this technology is either imported or developed outside of Europe, creating a dependency on external providers and stifling homegrown innovation.

Implementing software import taxes would not only reduce this dependency but also push European companies to meet the growing need for AI solutions internally. This would create a virtuous cycle of local innovation, with European companies developing tailored AI systems that align with regional values, regulations, and ethical standards.

Why This Matters

1. Preventing Technological Dependency Without strong local AI development, Europe risks becoming overly reliant on external technologies, leaving its industries vulnerable to global supply chain disruptions and foreign regulatory changes. Taxing imported software could mitigate this by encouraging European companies to develop their own AI tools and platforms.
2. Retaining and Attracting Talent Europe has no shortage of skilled AI professionals, but many are drawn to higher-paying opportunities in other regions. A thriving local AI industry would help retain this talent and attract international experts to Europe’s growing technology hubs.
3. Ensuring Ethical AI European regulations, such as the proposed EU AI Act, emphasize ethical and human-centric AI development. By fostering local AI industries, Europe can ensure that its values—such as data privacy, fairness, and accountability—are built into the foundations of its AI systems.

A Competitive Advantage for the European Union

If Europe embraces this opportunity, it could turn potential challenges into competitive advantages. By investing in its own AI ecosystem, the EU could position itself as a global leader in trustworthy, high-quality AI solutions. This approach would not only create jobs and stimulate economic growth but also reinforce Europe’s sovereignty in the digital age.

The need for AI solutions is growing, and the time to act is now. Treating software as a taxable product, and using those revenues to support local innovation, could ensure that Europe doesn't just keep up in the AI race—but leads it!

Driving Growth Through Localized Innovation

Taxing software imports isn’t just about fairness—it’s about fostering long-term growth in local economies. By redirecting investment into domestic industries, such policies could ignite a wave of innovation and entrepreneurship, creating a stronger, more sustainable foundation for technological advancement.

A Catalyst for Startups and SMEs

One of the most exciting outcomes of incentivizing local software and AI development is the potential for a thriving startup ecosystem. Small and medium-sized enterprises (SMEs) are often the lifeblood of innovation, capable of delivering creative, agile solutions to industry challenges. With greater incentives to develop locally, startups could emerge as key players, driving competition and ensuring that innovation is distributed across sectors, not monopolized by a few tech giants.

This growth would also benefit local supply chains, as startups and SMEs often collaborate with other businesses for infrastructure, tools, and expertise. A robust local ecosystem feeds itself, creating opportunities for more players to thrive.

Empowering Regional Economies

Localized development doesn’t just benefit tech hubs in major cities—it has the power to uplift regional economies. Imagine smaller cities or underdeveloped regions becoming centers of specialized software development or AI research. With the right support, these areas could attract investments, create jobs, and reduce economic disparities within countries.

Furthermore, as regions develop their own niches—such as AI for green energy in Scandinavia or advanced manufacturing solutions in Eastern Europe—this diversification would help create a more resilient European economy.

Long-Term Economic Multipliers

Investing in local talent and innovation creates compounding benefits. As local companies grow, they reinvest in their communities through job creation, infrastructure improvements, and educational opportunities. This virtuous cycle ensures that the benefits of technological advancement are shared widely, creating prosperity for generations to come.

By treating software as a taxable product and incentivizing local development, we’re not just building an industry—we’re laying the foundation for sustainable growth that touches every corner of society.