Ever since the Brexit referendum of 2016, UK officials have stressed they want the freedom to pave a different policy path from Continental Europe. Why then would they want to craft a proposal that mimics some of the most punitive, anticompetitive aspects of the EU's flawed digital services tax scheme? The outlines of the UK plan bear many undesirable traits of Europe's deservedly criticized framework, starting with a design consciously intended to slam U.S. companies. It goes downhill from there, in aiming itself at one particular industry, and by employing the long-discredited concept of taxing gross receipts.
If this proposal is intended as a ploy to encourage multilateral collaboration, UK officials should bear in mind that numerous governments are all too happy to view this signal in another way: as a green light to pursue even harsher tax collection strategies. But whether they are unilateral, bilateral, or multilateral, proposals to capture more revenue from the digital economy fail to appreciate the prosperity that this sector is already delivering to citizens -- and treasuries -- around the world. The collateral damage from this digital tax would quickly become known to consumers.
Discriminatory taxation is no basis for a sound system of revenue administration, and this scheme will backfire. Tens of thousands of UK-based small and medium enterprises will suffer from the higher costs and reduced market opportunities that will be passed along in the response to this tax scheme. Their counterparts in other, smaller nations who have ties to UK firms will feel the pain too. According to the McKinsey Group, by 2025 the "Internet of Things" that has developed in the digital economy will deliver $11.1 trillion in added value to the world. Policymakers should recognize that all this money isn't being squirreled away in the bank accounts of a few tech giants -- it is being put to work in numerous innovative, productive activities that ultimately generate considerable revenues for governments.
Small business employment growth will likewise take a serious hit from this UK proposal, since a separate study concluded that the tech architecture is creating 2.6 new jobs for every old job displaced. Meanwhile, pensioners whose financial security may depend on solid returns from tech company stocks could face less comfortable retirements if share prices are affected by the tax.
As the European Centre for International Political Economy recently concluded, the average effective tax rate for corporations in the digital group is just just 0.3 percentage points lower than that of traditional companies on the EuroStoxx index. It is difficult to believe that the results would be much different if such a comparison were conducted using indices more relevant to the UK.
The UK should shelve its digital tax plan as the OECD-G20 nations formulate their global framework and work with those nations to ensure that the principles of tax competition and prudent limits on government powers are upheld.
Britain should not risk becoming an outlier with overbearing exotic tax administration that will chase prosperity from its shores. Rather, it should exercise the strong leadership on behalf of prudent, pro-taxpayer policies which has so often made the UK an exemplary standout among nations."
NTU is a founder of the World Taxpayers Associations, an alliance of citizen groups spanning the globe (including the UK and Europe) focused on the common aim of taxpayer protection. Recently NTU led a coalition statement to US Treasury Secretary Mnuchin urging that he take a strong stance against the EU'S digital tax plan.