Why the Budget’s Digital Services Tax is a mistake

Why the Budget's Digital Services Tax is a mistake

With a Brexit deal said to be in touching distance, the Government must blow a fanfare for post-Brexit Britain

Andrew Bird, CEO of Global Services Marketplace, shares his thoughts on the Budget’s Digital Services Tax announcement.

The Chancellor made much of his Budget, signalling the ‘end of austerity’ but the proposed Digital Services Tax  was a mistake which a country stepping out into the post-Brexit world should not be making.

News this weekend signalled that a deal was all but made, the pen poised above the space for the signature of the Prime Minister as we herald a new dawn for the UK. It is a decision which was made in a democratic referendum by the majority of people despite numerous warnings by the then Chancellor and business groups.

At the heart of the campaign to leave was the opportunity for Britain and Northern Ireland to forge ahead economically, free to make trade deals with the rest of the world and throw off the shackles of regulation that do so much to stifle small businesses and keep barriers to entry high. The EU is not communist: it knows it needs businesses to create jobs and pay tax – it just prefers them big so it can liaise with them directly.

This latest proposal, which he called a “narrowly targeted” tax only to be paid by large companies that are profitable, is an error.

But with only months to go until our departure from the bloc, the message that came out of the Treasury was the sort of doom and gloom that many people say cost the ‘remain’ camp credibility during the referendum campaign. And top of the list of ‘bad ideas’ was the proposal for a digital services tax.

The ‘Tech Tax’ – as it is much easier to call it – means that online tech giants including Google and Facebook are to be hit with a new levy worth up to £400m per year as Philip Hammond tries to shift purchasing patterns of Britain’s consumers through fiscal measures.

But this latest proposal, which he called a “narrowly targeted” tax only to be paid by large companies that are profitable, is an error.

The UK tech industry is performing well, and that boom doesn’t just benefit those working in the industry: it benefits the whole country from secondary suppliers to public services funded by taxes generated by corporation tax and income tax.

The UK should be championing itself as a bastion of business, of global trade and of innovation

At a time when the UK is negotiating its way out of a stilted political bloc which produced mountains of regulation making innovation much trickier, the UK should be championing itself as a bastion of business, of global trade and of innovation – and that means we need the business environment – and the reputation that goes with it – which attracts start ups and investment.

Technology appears to be being ignored by the government, and perhaps the civil service. It is an area where they may be lacking expertise, but the country is brimming over with people clamouring to talk to decision makers about what is available. And it’s not just what is available for problems, such as the Northern Ireland border, but about what is available to take the UK to the next stages of innovation.

There are two ports in The Netherlands, for example, using Blockchain technology to streamline and secure shipping. We’re an island nation, so why isn’t that British tech being suggested for use at Dover, instead of deathly silence whilst news of a French-Irish border deal hits the headlines? Why instead of inviting members of the industry which is growing 2.6 times faster than the rest of the economy to Downing Street – from teenage techies developing apps in their bedrooms through to researchers and business owners – are they suggesting a new penalty?

A unilateral UK tax is a showboat tax, aimed at pandering to the public galleries. Instead of that pro business message we should be sending out across the world, it says ‘we can’t make the current model work properly because it is outdated, so we have instead developed this massive sledgehammer to crack every successful tech firm’s nuts.’

This tax also cannot distinguish between firms that already pay plenty of tax and those that do not. It also appears to be some kind of additional corporation tax for technology companies because it is based on turnover: why not just let corporation tax do its job instead of specifically targeting a highly successful industry?

As with so many costs, it is the consumer who will inevitably pick up the bill for this either through higher prices or lower levels of investment and competition as new entrants are deterred from entering the market.

Is this really the best that our leaders can do? It’s as crude as oil from a well.

 

Andrew Bird is the CEO of Global Services Marketplace which specialises in blockchain technologies

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