Britain announced a new digital services tax during Budget yesterday. The new tax, which targets technology giants such as Google and Facebook would help raise around £400 million a year.
The tax which will come into effect in April 2020, is not a surprise move. Britain joins other countries who have embarked on the move to tax digital services, as countries keep in pace with the changing digital landscape and how businesses operate.
Many other jurisdictions including Australia, Singapore, Taiwan and New Zealand, have already announced or implemented taxes on imported digital services.
Earlier this year, Singapore announced its intention to implement digital services tax with effect from January 1, 2020. The country plans to tax businesses providing digital services such as the streaming of entertainment content.
Britain has been making attempts to implement a change to international corporate tax systems, but progress has been seen to be slow.
Tech giants not playing fair
Britain’s finance minister Philip Hammond called out on tech companies in his annual budget speech, saying that it is not “sustainable” or “fair” for digital platform businesses to generate income in the UK without paying the appropriate amount of taxes.
Mr Hammond stressed that the tax will be designed to ensure established tech giants, rather than start-ups, shoulder the burden.
Large tech companies are seen to usually adhere to the taxation rules in the countries they operate their business in, as they have to follow the law to ensure no reputational damage would be made to their brand. Usually it is harder for smaller firms to be tracked on their digital sales, and it is more likely for the smaller online firms to evade taxes.
Which businesses will the tax target
Tech companies that generate more than £500 million a year in global revenue will be the targets. Profitable companies would be taxed at 2% on the money they earn from users in the United Kingdom, with effect from April 2020.
According to Mr Hammond, the tax will be skewed to social media platforms, online marketplaces, and search engines. This means digital services such as Amazon, Facebook, and Google are likely to fall into this category.
It is possible for firms that are affected to pass on the tax hike to consumers, analysts have said in this ongoing debacle to tax digital companies.
This will make digital goods more expensive to consumers and may crimp on businesses’ revenues.