software hmrc digital services tax

UK Government Raise $430 Million in Digital Service Tax

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His Majesty’s Revenue and Customs has raised $430 million in taxes from the Digital Services Tax (DST). The 2% tax on profits, introduced in April 2020, is aimed at US tech giants that turn over more than $500 million a year through online services and platforms such as Google, Amazon, Meta, Apple, and eBay.

Initially the digital services tax was expected to give HMRC $320 million but the pandemic drove users to purchase more digital products and services which increased profits. Despite the success of DST, the Corporation Tax revenue gained by HMRC from the tech giants was still a measly $424 million compared with the billions of dollars made in profit and there may still be corporations not paying their fair share.

Digital Services Tax ensures a fair share

Chair of the committee of public accounts Meg Hillier said:

Around 90% of DST collected in 2021-22 comes from just five large business groups. HMRC needs to test whether all businesses – not just the low-hanging fruit – are paying their fair share.

It is no secret that multinational corporations have avoided tax by declaring profits in counties with the lowest taxes. However, there is no easy solution to the problem. When countries impose higher taxes on foreign companies, it can trigger trade wars that cause higher trade tariffs set in retaliation. One of the few solutions is for countries to cooperate and be consistent with business tax rates.

New global tax system

DST is a temporary measure and will only be applied between 2020 and 2023. In 2024, The UK will transition away from DST towards a new global tax system that will ensure multinationals pay their fair share in the countries where they do business. A new system has been agreed upon by 137 countries and consists of two main aspects, named Pillar One and Pillar Two.

Pillar One ensures that companies pay their fair share of taxes in the countries in which they do business, and Pillar Two sets a minimum corporation tax rate of 15 percent. The latest announcement from the OECD, the organization spearheading the tax changes, can be read on its website.

James Capell

Technical editor and journalist. I have a particularly strong interest in NLP, AI ethics and cyber crime. Not too fond of cats.