UK could impose a 2% digital services tax on tech giants starting in 2020

2 min read

As per the UK budget report 2018, chancellor Philip Hammond is planning to introduce a digital services tax from April 2020 on tech giants. The chancellor is proposing a 2% tax rate against the sales that large digital companies make in the UK.

The digital services tax is to be levied against social media platforms, internet marketplaces and search engines (read Facebook, Amazon, and Google).

At the moment, digital media firms used to pay taxes on UK profits, which is a much smaller figure than revenues. The new digital services tax would be levied on companies that are profitable and generate “at least £500m a year in global revenue”. Which clearly indicates that the chancellor is targeting tech giants instead of startups.

The UK seems to have become frustrated with the slow movement of international lawmaking in this space. Both the 36 member OECD (Organisation for Economic Co-operation and Development) and the European commission have been working on this issue but the progress has been quite slow.

Taking matters into their hands, the UK Govt has earmarked April 2020 for the new levy. The Treasury forecasts that the tax will generate £275m in 2019-20, rising to £370m in the following year. It then expects that digital services tax receipts will reach £400m in 2021-22 and £440m the year after. However, Julian David, chief executive of industry body TechUK, said the proposed £500m threshold was “low” and “and risks capturing much smaller companies than anticipated”.

Although the digital services tax is going to be effective from April 2020, it may not move ahead if the EU intervenes before that. Europe may also potentially move ahead with its own digital levy which would tax firms at a 3% rate. The OECD also intends to provide an update on its plans in 2019 with the aim of producing a final report the following year.

People all over the internet have varied thoughts over this proposal.

While some are happy:

One hacker news user commented, “With business rate slashes to help struggling retailers (retaliation against Amazon) and mental health funding increases for schools (retaliation against Facebook/Google), I’m quite happy to see something happen at last. I expect other governments to follow suit.”

Another user said, “This is a pretty good idea. Tech giants make money in Europe paying little to no tax incorporating in Ireland, while all small to medium businesses incorporated in the UK pay the usual tax. It’s simply unfair.”

Some are not:

We can only speculate as to how the tax will unfold. The implementation details are bound to be tricky, and surely companies will look for loopholes to avoid taxes.