November 05, 2018

News

The infamous Cambridge Analytica case has gone on to effect multiple events that have happened the UK. The implementation of data-privacy policies from GDPR, much-talked about and frequent committee meetings with some of the biggest tech businesses, record fines by competition commission and now the introduction of heavy-duty taxes from tech giants.

In the latest Autumn Budget announcement by the UK Government in London, Chancellor of the Exchequer Philip Hammond revealed that the government is planning to levy a ‘digital services tax’ on tech companies, which is expected to raise around 400 million pounds in just one year.

Mr. Hammond also clarified that the taxes will be targeted towards the big tech companies and not start-ups. More specifically, the tax will only focus on companies that have a global revenue of at least 500 million pounds. So it is only the well-established companies like Google, Facebook, and Amazon that have to worry about the upcoming tax. Startups, freelancers, and even small companies can still focus on growing their businesses without having to worry about the tax.

The government plans to bring the tax into effect by April 2020, after which, the companies will have to pay 2% of their revenue from UK users. The tax will be implemented as a draft for the first few years, and in the year 2025, it will be reviewed for further amendments.

In response to the argument as to why this digital services tax is needed when tech companies are already paying corporate taxes on profit, Mr. Hammond has said, “It is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here.”

TECH BUSINESSES WILL HAVE TO PAY A DIGITAL SERVICES TAX

 As reported by Business Insider, Amazon in the UK has paid £4.6 million in taxes last year, even though its UK revenue had reached nearly £2 billion in pounds. The report further clarified that big companies are known for using complex financial arrangements, which reveal only minimal profits in the UK. However, the very concept of this tax implies that is will be used on revenues and not profits that makes it controversial. This, as Bloomberg reported, will make the UK ‘a less attractive place for the companies to supply their services.’

Although Mr. Hammond has clarified that this tax will only be levied onto the profitable companies, the sheer concept of taxing the revenue has made it necessary for the 36-member OECD and the European Commission to consult further and reach a consensus. This has led the government to set the tax on a temporary status for the first three years, and only after formal review in the year 2025, will it be brought into effect with complete force.

From the lack of guidelines in the proposal shared by the government, and the controversies around the tax itself which, according to the trade body Tech UK, will make it very costly, makes it evident that there is still a plenty of things that need to be fixed before the tax is implemented even as a draft.

Resources:

https://www.businessinsider.in/Amazon-is-under-fire-for-its-tiny-1634-6-million-UK-corporate-tax-bill/articleshow/65257852.cms

https://www.ft.com/content/c38eea76-db95-11e8-9f04-38d397e6661c

https://www.bloomberg.com/news/articles/2018-11-04/euro-area-finance-chiefs-to-talk-italy-as-sanctions-threat-looms

https://www.businessinsider.in/heres-how-the-uk-plans-to-seize-2-billion-in-tax-from-firms-like-amazon-facebook-and-google/articleshow/66432909.cms

https://www.bbc.com/news/business-46023450


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