This week Chancellor of the Exchequerin Phillip Hammond announced that technology giants in the UK will be forced to pay taxes on the sales they generate. Since ecommerce has gained popularity in the last decade, Amazon, Google and Facebook have been criticized in the UK for the little amount of taxes that they currently have to pay even though they are US tech giants. The international effort to make standardizations on taxing these services has been discussed but has not progressed. The UK has taken things into their own hands without any international agreement being reached.
The new digital services tax will be a levy against social media platforms, ecommerce sites and search engines. The tax will start the giants rather than start ups, as the start ups are not bringing in the large amounts of revenues. Currently, the chancellor is proposing a 2% rate against these companies’ sales. Right now, taxes are paid on the profits, but taxing revenues instead will bring in much more. The expectation is to gain £400 by 2021-2022 in tax receipts. Mr. Hammond stated that the tax will be on companies that are making profits and generate at least £500 ($641 million) a year in revenues globally.
However, some argue that the £500 amount is low and will catch smaller companies in the threshold that are not considered tech giants. Before enforcing this law in April 2020, a higher number should be considered for the qualifying companies. Right now it is said that the UK is the best place for start ups in the world. If this tax reaches newer and smaller companies, the UK might have that reputation jeopardized. That also risks the amount of international investments the UK receives. While the tax would be relatively small to the companies, it is one step forward in increasing the tax burden these tech giants hold.