Britain has introduced a new digital services tax that is aimed at taxing revenue generated by online platforms such as Google, Amazon and Facebook in the country. By doing so, the country feels that it will be updating a system that has not been keeping up with the changing digital business models. In his annual budget speech on Monday, finance minister Philip Hammond said that it is not sustainable or fair that digital businesses are able to generate substantial value in the UK without paying their taxes here in respect to that business.
According to the finance minister, the tax will be designed to ensure that established tech giants and not startups were shouldering the burden. The profitable companies will now be taxed 2% on the money they make from UK users from April 2020, a measure that is expected to raise more than GBP 400 million, an approximate of $512 million per year. The tax will be based on results of self-assessments by the companies.
According to Hargreaves Lansdown analyst Laith Khalaf, a tax of say 400 million pounds might seem insignificant when you compare it to the amount of revenue companies like Amazon make every year but tech giants and shareholders should look at it like a small amount that could trigger so many taxes from international governments. Tech companies which follow tax rules in their own country ends up paying little tax in other countries.
Google and Facebook have however changed the way they account for their activities in Britain. In 2016 for instance, Facebook was recording its revenue from UK customers with the support of its local sales team. Any taxable profit was subjected on the income to UK corporation tax. But a number of counterbalances showed that Facebook had a tax charge for 2016 of 5.1 million pounds in Britain compared to the 4.2 million pounds it had in 2015.
The tax move is an attempt by Britain to reform its international corporate tax systems. The progress has been slow but the time for implementation is already here, according to Hammond.