Digital Services Tax: A Disaster for the Tech Industry

By Erin Few.


Chancellor Philip Hammond’s 2018 budget brought news of yet another unnecessary tax on UK businesses. This newly proposed levy, the Digital Services Tax, will be implemented by April 2020. Following the lead of some European countries, such as
Italy and Hungary, which have adopted similar taxes in recent years, the policy would impose a 2 per cent charge on tech companies generating over £500 million a year in revenue. This new tax is not only bad for the British tech industry, but would also stiflebthe growth of UK companies as a whole.

The United Kingdom’s investment in tech is already lower than other competing countries. Adopting a tax that punishes innovative companies for their success will discourage domestic investment into a continually growing industry. Hammond claims that this tax would only target big businesses, but many experts share the sentiment that tech entrepreneurs would actually suffer most. Dom Hallas, the director of the Coalition for a Digital Economy, said “tech giants ... are in fact best placed to deal with an increased tax burden. The true cost will be in hurting innovative British companies who want to develop at home then grow globally.” In such a fast growing field, the burden of taxation should not inhibit growth; on the contrary, the United Kingdom should be incentivising innovation and startups to make them more competitive in the international digital industry.

It is also bad news for the competitive development of British digital companies when considered in a more global perspective. The Economist starkly points out that “of the world’s 15 largest digital firms, all are American or Chinese. Of the top 200, [only] eight
are European.” According to the Tax Foundation, not only are there fewer companies, but capital investment for the digital industry in all of Europe is only around half the investment of American companies. If the United Kingdom, or Europe as a whole, continues adopting new taxes on the profit of tech companies, then it will suppress the already tepid investment of British companies in the global market and thus the success which follows.

Although the Digital Services Tax has been announced by the Chancellor, there is still time to stop it. Instead of adding more taxes and regulations, the UK government should emphasise economic freedom and make it easier for their companies to grow. Introducing this tax would negatively affect the growth of startups and make it more difficult for innovation to flourish. The United Kingdom should instead be a trailblazer on the digital services frontier, rising above competing countries and promoting the advancement of this cutting-edge industry.

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