1. News
October 30, 2018

Amazon faces digital services tax following UK Budget announcement

The UK government has announced the introduction of a digital services tax from April 2020, which will ensure online marketplace giants like Amazon “pay their fair share”.

By Jasmine Lee-Zogbessou

The UK government has announced the introduction of a digital services tax from April 2020, which will ensure online marketplace giants like Amazon “pay their fair share”.

Chancellor of the Exchequer Phillip Hammond addressed the House of Commons yesterday (29 October) to announce the UK’s Autumn Budget and criticised the EU’s “painfully slow” process on internationally taxing tech companies.

Hammond proposed a 2% tax rate against profitable online companies that make at least £500m a year in global revenue.

Responding to the announcement, Hitachi Capital’s managing director for consumer finance Vincent Reboul said: “A digital tax is a good first step to modernise taxation of large tech giants, but there is some way to go to create a tax environment that treats all UK business fairly, frees up capital for investment and provides the right conditions to stimulate growth across the whole sector.”

The digital services tax is expected to raise £400m between 2021 and 2022 and £440m the following year; small start-ups will be protected by the global revenue cap of £500m a year to be eligible for the tax.

Hammond also clarified that the measure will not be an online sales tax, as this would “fall on consumers of those goods”.

“This approach risks undermining the UK’s reputation as the best place to start a tech business or to invest,” commented Julian David, CEO of UK technology industry association TechUK. “The £500 million threshold the Chancellor proposed is low and risks capturing much smaller companies than anticipated.”

On the other side, GlobalData UK retail research director Patrick O’Brien isn’t convinced that the tax will do enough to balance out the playing field between online retailers and their high street counterparts.

“I think the Budget will be a big disappointment for major retailers,” O’Brien says. “The levelling of the playing field that they had been asking for is not going to happen. Yes, Amazon along with Facebook and Google will pay more, but it will do nothing to address the perceived inequality in tax burden between retail chains and online pure plays such as Boohoo and ASOS, who it appears will not be hit by the digital services tax.”

This digital tax follows findings that US technology companies are paying small amounts of tax in the UK.

Amazon recently revealed that its UK tax bill almost halved from £7.4m in 2016 to £4.5m last year, after the organisation revealed record profits of $2.5bn (£1.9bn) in its latest quarter, according to the Guardian.

As a result, this budget announcement could be a fundamental step to eradicate tech giants evading large tax payments.

Mandeep Singh, CEO of e-commerce platform Trouva, said: “The introduction of the digital services tax appears to be one way to level the playing field with the e-commerce giants, but the devil will be in the detail to come as at the moment how it will exactly work is unclear.”