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“A WOODEN SWORD WITH THE POINT BROKEN OFF!”

DIGITAL SERVICES TAX, APRIL 2020

The Chancellor’s Budget, 29 Oct 2018

In any other media sector, the idea of a new tax on Ad revenues would be anathema.

But in a world where online giants are driving the high street into decline, this move is long overdue.

Finally HMRC is beginning to tackle the scandalous shortfall in tax revenues paid by the online giants.   The issue is widespread and is endemic well beyond our shores, and across Europe the differential is stark:-

EU Businesses – rates of Corporation Tax paid

Traditional companies:    25% (average)

Online companies:    9% (best estimate)

The 2% revenue tax does make sense at a very crude level.  Firstly it applies to advertising income, as opposed to a sales tax, which would be picked up directly by consumers.  It’s aimed at established search engines, social media companies and online marketplaces – no more precise definitions are forthcoming – that generate global revenues of more than £500 million a year.  So UK tech start-ups and companies that are loss-making would not be affected.

BUT…  at a projected £400m per year, the HMRC’s shiny new income is £20m less than our national pothole road repairs budget!

As Ray Snoddy would have it, “such a gap equates to the loss of between €50 billion and €70 billion in taxes a year, even before the issues of competitive disadvantage that result are taken into account.  Chancellor Hammond’s  £400m…  amounts to a wooden sword with the point broken off.”  (Mediatel  https://tinyurl.com/y76orm7u).

Frustrated at divisions and lack of global progress under the OECD, Hammond deserves credit for putting Britain ahead of the rest, with the tax to UK Ad turnover due to come into effect in April 2020.

But that’s 18 months away!  Time for plenty more losses on the high street (not to mention local newspaper rationalisations/closures) before the treasury even claims a single $, € or £.

And even when the projected £400m does comes in, will the government use the proceeds to shore up the ailing high street?….  not to mention struggling local newspapers?

So far, no comment, Mr. Hammond.

So much for the Holy Grail of the market driven economy.

Richard Huglin

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