The proceeds of an iPod tax – a levy on the sale of such devices - go towards compensating rights holders for the loss of revenue resulting from home duplication and file sharing.

The first attempt by the Japanese government to impose a new levy on the sale of iPods and similar portable hard drive devices came in 2005, when a governmental committee considered an additional royalty fee of between 2% and 5% on their sale, to go to record companies, songwriters and artists. However, the government could not reach agreement, and the idea was shelved until this year, when the Agency of Cultural Affairs wheeled it out again.

As before, a firestorm of opposition from public opinion and fierce lobbying from manufacturers backed the government into a corner, and last week it was once more obliged to drop its plans. An official from the Agency admitted that there was virtually no hope of getting the legislation passed.

The idea of a storage device tax is not a new one, even in Japan, where DVD recorders and minidisk players are already subject to a copyright levy. And such taxes have been imposed or considered in several other countries, including the Netherlands, Switzerland, Canada, and most recently Spain, where a levy was introduced at the beginning of this month, on all electronic devices "capable of copying or recording sound and images”.

Proposals for iPod taxes arouse strong emotions, being greeted with rapture by the entertainment industry, and horror from consumers and manufacturers. Music companies are cock-a-hoop at the prospect of gaining a bigger slice of compensation from the format-shifting customers they see as stealing their livelihood, while manufacturers are despondent at the thought of being forced to either pass the tax on to the end consumer (unpopular), or absorb the additional cost themselves (unthinkable).

In Holland in 2005, the Stichting Thuiskopie Foundation called for an initial EUR3.28 per gigabyte tax on MP3 players and similar devices, and although the call was couched in anti-file sharing terms, it was still widely condemned as an attempt to force Dutch consumers to pay twice for their music.

A similar levy went down even less well in Canada, and was put aside by an appeals court in fairly short order, with the Supreme Court subsequently declining even to hear a dispute over the necessity (or otherwise) of such a tax. In January 2008 the issue resurfaced, when the Copyright Board of Canada proposed a levy which would have hit 30 to 80 gigabyte storage devices the hardest, increasing prices by up to 29%. The Court simply told the Copyright Authority that it had no legal authority to invent such a levy; so for now, Canadians are safe.

The whole question of music royalties is wide open, though, and a solution will have to be found as the continuing development of the internet as a sales and marketing platform for musicians unseats record companies from their traditional position of power. Historically, mechanisms for compensating artists for their work have been based on taxing product at the moment of its transfer from the producer (record company or broadcaster) to the consumer, extended to a certain extent onto the Internet via royalties on downloads from online music stores such as Apple's iTunes to the user's personal computer. In this respect iTunes is no different from a conventional record company, and the same applies to such as Amazon. It’s easy to forget, by the way, that the royalty mechanism dates mostly from the 19th century – it’s of no great antiquity, and the Internet has of course thrown a giant-size spanner into the works.

The first crop of commercial but piratical music-exchange sites such as Napster have been more or less corralled into compliance with regular norms of behaviour, but what we may call ‘passive’ market-places for consumer-to-consumer exchange such as YouTube and social networking sites in general pose a problem of a different order. Wikipedia currently lists more than a hundred important social networking sites with a combined membership tally of more than a billion people. The efforts of the record companies to impose some sort of royalty structure on social exchange transactions lag far behind the technical capabilities of the sites, and will always do so.

A new economic model of producer-consumer exchange is required, without the involvement of government-sponsored or assisted taxation, and it is possible to see the beginnings of this as recording artists and writers start to use the Internet in innovative ways to put themselves before the paying public. What seems certain however is that the conventional intermediated model is a dead man walking.

While new models emerge, there will continue to be extreme pressure from the copyright organizations and the entertainment companies for taxes on recording devices to replace their lost royalty revenues. But where does this leave the Japanese and Canadian governments? Clearly the issue is a persistent one, as evidenced by the long-running nature of the Canadian dispute, and the resurfacing of the issue in Japan after a period of several years.

Governments are in a bind: they want to help, but on the other hand any type of device-based tax is deeply resented by citizens. And record companies don’t have votes. In addition, taxes on highly portable, small devices are notoriously hard to enforce and expensive to collect.

The iPod tax issue is not going to go away, and will likely cause a great deal of smoke and dust for years or decades to come. But will probably do little to line the emptying pockets of the record companies.