UK digital services tax rise gains public backing

The news

A Fair Tax Foundation survey released on Monday found that 67% of respondents believe the government should charge higher digital services taxes on multinational technology groups. The UK introduced its 2% digital services tax in 2020 on revenues of search engine, social media and marketplace companies with UK sales above £25m. Three-quarters of those polled also said they would prefer to work for and shop with businesses that can prove they are paying their fair share of tax.

What's at stake

The digital services tax applies to companies such as Meta, Google and Amazon when their UK sales exceed £25m or global sales exceed £500m. It was designed to capture revenue from digital platforms that may not pay corporation tax in proportion to their UK activity. The policy affects search engines, social media platforms and online marketplaces, sectors dominated by large multinational groups.

France operates a similar 3% digital tax on large technology companies, which has drawn international attention. The UK levy remains at 2%, lower than the French rate, and applies only to revenues rather than profits.

The case for

Higher rates would increase the overall tax contribution made by large technology companies operating in the UK. The current 2% levy on qualifying revenues would generate more public funds if raised, supporting services used by UK residents. Survey evidence shows most respondents want multinationals to pay more toward the UK tax base.

The case against

Raising the rate could prompt companies to pass costs on through higher prices for UK consumers or reduce future investment in the country. Other European digital taxes have prompted tariff threats from trading partners, creating risks for related export sectors. Companies may also restructure operations to limit exposure to the higher levy.

Why it matters now

Public opinion data released this week increases pressure on the government to review the 2% rate. If the tax rises, additional revenue would flow from qualifying digital platforms; if it stays unchanged, the contribution level remains fixed at the rate set in 2020. No immediate legislative timetable has been announced.

Further reading

The Guardian

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