How Should We Tax Internet Countries

Source

* Article: How Should We Tax Internet Countries? Here's what we can learn from Japan, Germany, and DAOs. By Madison Karas. Elysian, Jun 16, 2026

URL = https://www.elysian.press/p/how-should-we-tax-internet-countries

The proposals below are based on this research: Funding Public Goods Without Central Authority.

Discussion

A Proposed Two-Tier Taxation System for Digital Nations

Madison Karas:

"Drawing on these cases, I think digital nations should distinguish between infrastructure goods, foundational services that enable national operations, and service goods that could be avenues for citizens to have a meaningful say in funding. This would split a tax model into a two-tier structure, requiring citizens to participate in both tiers.

Tier 1: Mandatory Infrastructure

Tier 1 covers services essential for basic participation in the digital nation: services that exhibit strong network effects and whose exclusion would undermine core national functions. The qualification tests for something to belong here are:

• Universality test: Is this service required for basic citizenship participation?

• Network effects test: Does value increase substantially with universal adoption?

• Exclusion harm test: Would excluding non-contributors undermine the good’s core function?

• Infrastructure test: Is this foundational to other services?

What that looks like in practice: identity and authentication systems, security protocols, governance infrastructure, interoperability standards, compliance and enforcement mechanisms, and data collection.

In your digital community nation, this tier could look like charging citizens a flat annual fee or income-based contribution, which would give your community a stable, predictable operational cost. This would help you cover things such as the platform you operate on and host, the upkeep and processing of identity statuses, and funding the core governance and offices capability.

Tier 2: Citizen-Directed Allocations

Tier 2 covers services that enhance citizenship but aren’t essential for basic participation. All citizens make a mandatory contribution, but direct it based on their own priorities. This is the design move that distinguishes the framework from Furusato Nōzei: keeping contribution mandatory while making direction a citizen choice prevents the consumerism trap without removing agency.

• Qualification criteria for Tier 2 services:

• Excludability test: Can access be limited to those who fund it without undermining core functions?

• Preference diversity test: Do citizens have genuinely varying preferences for this service?

*Competitive provision test: Could multiple providers deliver similar services?

• Mission alignment test: Does this connect to the digital nation’s stated values?

• Innovation potential test: Does this allow experimentation?

In your digital community nation, these tier programs could serve as a collective identity, with a set amount or percentage of taxes dedicated to them. In Plumia’s case, asking digital nomads about their needs yielded ideas for services such as visa support and travel coordination, VPN services and secure communication tools, language training and skill development, healthcare navigation, family support resources, experimental community-driven initiatives, and cultural goods.

The governance model for Tier 2 could include review boards to establish approved categories, transparent qualification processes with citizen input, and impact assessments. Services that receive insufficient directed funding can be suspended or restructured, which creates accountability without removing the baseline civic contribution. Like existing public services, there could always be a better market alternative for purchase, but the government could serve a role in offering these types of services subsidized, customized, or more accessible to the population.

The two-tier model is designed to do three things: first, separate what must be universal from what can be individualized, ensuring the universal component is never compromised; second, embed revenue generation into the system’s identity and infrastructure services, rather than depending on ongoing enthusiasm or market conditions; and third, give citizens a meaningful role in allocation decisions, transforming tax contribution from a passive obligation into an active expression of citizenship.

The deepest pattern across all the models studied is this: the ones that endure are the ones that connect individual participation to collective meaning. Gitcoin and Optimism struggle when the definition of collective meaning is vague, Rundfunkbeitrag struggles when citizens don’t feel the collective benefit, and Furusato Nōzei struggles when the individual benefit swamps the collective purpose. Finding a path for a working model that makes this connection between contribution and benefit legible and real will be a continued obstacle in the design of a digital nation governance and taxpayer program. None of it works below some minimum viable scale, either; the threshold needs to be named, not assumed.

A digital nation is an unusual opportunity. It gets to build the connection between contribution and collective benefit from scratch, without inheriting the legacy infrastructure, historical debt, or institutional inertia of a territorial state. You still have to do the slow, careful work of defining what you’re funding, who decides, and how the system sustains itself when enthusiasm wanes and circumstances change. And that’s not a limitation of the digital nation concept, it’s the work. And it’s the same work that anyone building a sustainable “public good”—a newsroom, a cooperative, a commons—eventually has to do."

(https://www.elysian.press/p/how-should-we-tax-internet-countries)