Government digital services tax takes aim at Google, Amazon and Facebook

The days of Google, Facebook and Amazon dominating markets without paying back considerable amounts in tax could be over, thanks to the government’s proposed digital services tax.

Announced by Chancellor Philip Hammond at the Budget 2018 alongside cuts to welfare and tax breaks for the rich, the digital services tax is a way to get the likes of Facebook, Amazon and Google – who have typically paid smaller taxes – to pay more for operating in the UK.

The tax doesn’t specifically target the US tech giants, instead casting its net wide across social media platforms, online marketplaces and search engines that generate over £500m per year globally. It would  oblige these companies to pay a 2% tax on sales made in the UK. This would replace the current tax scheme through which they pay a 2% tax rate on revenues in the UK, which is a lot smaller.

Hammond suggested the tax will begin in April 2020, pending consultation. He expects it to generate £275m in its first year, rising to £370m, £400m and £440m in subsequent years.

READ NEXT: Facebook now lets you see who bought political ads

The tax is designed to make sure startups and smaller businesses are exempt, in order to prevent the UK’s tech scene from facing hardship. However, since the threshold is £500m globally, it does reduce the chance of burgeoning businesses making their way to the UK from elsewhere for fear of surpassing that mark.

While no specific companies were mentioned in the Budget, both Google and Facebook have long been criticised for paying minimal tax and using loopholes to save money. While paying 2% tax on all sales isn’t a huge loss for them, it does set a precedent for governments taxing online companies — currently only Spain has any plan to enforce a digital service tax.

The EU also has plans for a digital levy, which would cost the companies 3% on each sale, and Hammond stated that if the EU’s plans went ahead the digital services tax would likely be scrapped in favour of it. Of course, the UK won’t be following the EU’s rules for much longer, so it remains to be seen if the EU’s levy is introduced in time.