HAMMOND HAMMERS WEB GIANTS
£400m tax raid will hit online firms in a victory for the Mail
PHILIP Hammond last night pledged to force internet giants to pay their ‘fair share’ as he launched a £400million-a-year tax raid.
In a victory for the Daily Mail, he announced that a Digital Services Tax will come into force within 18 months.
Thought to be the world’s first, it will hit tech firms such as Amazon, Facebook and Google, which have long been criticised for paying tiny amounts of tax in the UK.
High street retailers have long complained that they cannot compete with firms when their tax bills are so much higher.
The Chancellor has threatened before to push ahead with a digital tax, but was waiting for global co-operation on the issue.
Yesterday he said progress was ‘painfully slow’, saying ‘we cannot simply talk forever’. He told the Commons he would ‘make sure people play by the rules’. ‘It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services,’ he added.
The Chancellor praised online search engines, social media and retailers which he said have ‘changed our lives, our society, and our economy mostly for the better’.
‘But they also pose a real challenge for the sustainability and fairness of our tax system. The rules have simply not kept pace with changing business models,’ he added. He said the ‘rules of the game’ needed to evolve to keep up with the digital economy and it was ‘not sustainable or fair’ that tech firms could generate huge revenues in the UK ‘without paying tax here in respect of that business’.
The tax, which will require a new law and 20 additional staff at HMRC, will only be paid by firms which generate at least £500million a year in global revenues. Due to come in from April 2020, it is expected to raise a total of £400million a year from around 30 companies. The tax will be charged at 2 per cent of UK revenues.
Mr Hammond said the levy would be ‘carefully designed’ and ‘established tech giants’ rather than start-ups would ‘shoulder the burden’. Only profitable firms will pay. In a bid to reassure customers, it would not increase prices and was not an ‘online sales tax’.
Amazon paid just £4.5 million last year in UK corporation tax on sales of close to £2billion, down from more than £7million a year earlier. The tax take will be raised from revenues the company earns from user data, which is used by search engines to target advertising.
Meanwhile, Google paid nearly £50million on sales of around £5.7billion a year.
After deductions, Facebook paid just £2.6million. However, Labour said the tax would raise less than the £725million taken from the self-employed every year. Deputy leader Tom Watson said: ‘The tech giants do need to pay more in tax, but the measure announced today is a pittance for these massive international companies. The new tax isn’t even set to be implemented until 2020, at which time the tech giants will start to enjoy a 2 per cent cut in their corporation tax rate. The lack of ambition in this announcement is derisory.’
Fiscal watchdog the Office for Budget Responsibility said there was uncertainty around how much the tax would raise. The regime will be reviewed in 2025. Last night, small businesses welcomed the move, saying it would ‘rebalance’ taxes between digital and bricks and mortar firms. The Society of Independent Brewers said: ‘When some small pubs owned by brewers pay more in business rates than Amazon and eBay do in corporation tax, we have to find a more permanent solution’.
But Daniel Pryor, of the Adam Smith Institute, said: ‘A digital revenue tax, lifted straight from the Corbynite playbook, will punish the millions of people who shop online and use online services every day.’
The Scottish Government has unveiled plans for a so-called Amazon tax which would see out-oftown firms and online retailers charged additional business rates, with the proceeds used to stimulate growth in town centres and city shopping areas.
Fife Council is one of the authorities to have expressed interest in the Government’s pilot to tax online retailers more through business rates. It has the Amazon distribution centre in Dunfermline.
The firm is currently bidding to slash its business rates bill in Scotland – despite already persuading assessors to reduce its rates charges by £200,000 a year.