The digital tax

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Subsidies for small to medium retailers and higher taxes for tech-giants. These are the new directives to be introduced in the UK by April 2020 in order to level the playing field between different distribution channels in a country that is greatly affected by the crisis of historical retail chains such as Marks & Spencer or Debenhams. Many retailers are struggling to survive as the competition from online firms – that employ fewer staff and pay lower tax rates – is increasing quickly.

Phillip Hammond, the Chancellor of the Exchequer and Member of Parliament, introduced two ways to level the playing field: firstly, support retailers with the profitability of their physical store through investments and tax cuts and secondly, increases taxes for online traders.

The new directives include a 1,6 billion investment as part of the “Autumn Budget” that is to be allocated towards the development of the ‘high streets’ of England. Furthermore, for companies with premises with a rateable value lower than £50.000, taxes will be cut by a third.   

 

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The second channel, however, has turned out to be more controversial. At the beginning of October 2018, the English government announced it would prepare itself to adopt more rigid fiscal laws towards online companies. Now, Hammond revealed plans to introduce the ‘digital service tax’ by April 2020. This digital service tax targets tech giants with revenues over £500 million by setting a 2% on sales by large social media platforms, internet marketplaces and search engines. This is a bold step: the UK would tax the very same companies that they are trying to woo to invest in the UK.

 

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Furthermore, US political leaders and business groups claim this proposal would violate tax agreements by targeting US firms. Therefore, they warned that the implementation of this tax could spark US retaliation and hurt prospects of a US-UK trade deal.

“If the United Kingdom or other countries proceed, that will prompt a review of our US tax and regulatory approach to determine what actions are appropriate to ensure a level playing field in global markets,” said Representative Kevin Brady, a Republican from Texas. A large number of US business groups, such as the US Chamber of Commerce and the US Council for International Business, have also spoken out against the tax.

However, the UK’s digital service tax plan seems to reflect the changing global economy and comes at a time when many others countries aim to capture more tax from multinational tech giants. For instance, the European Commission introduced a proposal in March for a 3% tax on revenues of internet companies with global revenues above €750m a year.

Many countries support the UK’s plan by agreeing that progress in global arenas to update tax laws had been far too slow while others recognise the need for tax laws to change, but oppose revenue taxes.

By Martina Reich

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