6 ms·

UK scores an own goal with its Digital Services Tax

10 points by nickstan 6y ago

ocdtrekkie 6y ago
The problem here is that it permits tech companies to pass the bill on. These sorts of taxes need to account for the fact that the companies it's leveraged on are monopolies, and can raise prices without issue. They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee.
- rlpb 6y ago
  > They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee. This is simply not practical to implement or enforce.
  - ocdtrekkie 6y ago
    At least one Russian lawmaker seems to plan to attempt it: https://www.macrumors.com/2020/09/02/russia-could-cap-apple-app-store-commission/ https://www.macrumors.com/2020/09/02/russia-could-cap-apple-...
    - metiscus 6y ago
      Russia has a long and storied history of working against economic gradients - it usually ends poorly.
  - flak48 6y ago
    India tried to do this anyway when the new Goods and Services Tax was launched : http://gstcouncil.gov.in/anti-profiteering-mechanism http://gstcouncil.gov.in/anti-profiteering-mechanism Which led to issues like https://www.bloombergquint.com/business/higher-grammage-vs-lower-prices-how-to-pass-gst-benefit https://www.bloombergquint.com/business/higher-grammage-vs-l...
- trentnix 6y ago
  You're trying to hold a river back with your outstretched arms. Taxes are always passed on to the consumer because they are a cost of doing business. Raise taxes, you raise prices. Always. Only competitive pressure and consumer discernment will drive down the price.
  - Retric 6y ago
    Taxing profits can’t be passed on. A company that maximizes profits can’t change it’s choices to suddenly make more profits because that’s what it’s already doing. At most they can hide profits via various loopholes intentionally left open, but that doesn’t impact customers.
    - metiscus 6y ago
      Assuming a perfectly spherical cow, if the tax is based on a percent of profit, the company can and will raise prices (if the market will bear it) to ensure that their gross profit numbers remain constant or continue to grow.
      - Retric 6y ago
        That assumes they are intentionally making less profit than possible at stage one. If even monopolies have limits, if the cheapest cellphone cost 2,000$ a month few people would have them thus lowering prices increases profits after a point.
        robjan 6y ago
        If the company charges higher "just because" then it creates an inefficiency in the market and allows new products to enter the market at a lower price point. If they charge higher due to taxes it doesn't create this gap.
        Retric 6y ago
        Monopolies can always lower prices at any time a new player enters the market. Theoretical future competition has zero impact on current prices. Just look at what happens to drug prices when the original patent expires. Similarly, ISP prices maintain high until just before a new options become available. Simply announcing Google fiber was eventually going to enter a city did not instantly lower prices. Sure, eventually that happened but ISP continued to charge high prices until forced to lower them.
- gruez 6y ago
  >They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee. What's preventing them from selling a "localized" product that's 10% crappier (assuming 10% tax)?
  - ocdtrekkie 6y ago
    The App Store, Play Store, and Ad Market don't really work that way: They're just rent-collectors on a market between developers and users. It would cost more to provide separate products than in other countries. They're just pure profit rent-seeking entities.
    - disgruntledphd2 6y ago
      I agree with you on the stores, but neither Google nor Facebook ads are rent-collectors in the traditional sense. To illustrate, consider a new ad network, which miraculously has access to all Google and Facebook users. Assuming that all is necessary is the market then this network should take 1/3rd of their revenue. However, this wouldn't happen as what people actually pay for is the optimisation of advertising, i.e. sending the ads to the "right" users such that costs can be controlled. Like, both of the companies are almost monopolies in terms of their consumer products, but they do in fact provide a very useful service to advertisers, and indeed have created a whole host of businesses that wouldn't have been possible without this optimisation.
      - ocdtrekkie 6y ago
        Both Google and Facebook want you to believe this. But while a Google-operated study found a 52% revenue benefit to targeted advertising, an independent academic study found a 4% benefit.
        disgruntledphd2 6y ago
        Look, this stuff is not easy to measure, at all. It's even harder when the two largest platforms (i.e Goog and FB) won't co-operate (for potentially legitimate privacy reasons). On the other hand, I can assure you that for most niche brands/services (i.e. the ones that spend money on digital advertising), spending $1m dollars on CPM ads on everyone in your audience, versus spending $1mn dollars on optimised advertising will have wildly different impacts on your bottom line. Source: did a lot of ads measurement analysis over the past few years.
iso1210 6y ago
He's internally inconsistent. He complains amazon etc will simply pass on the cost, but he also complains that they don't have to pass on the cost of things like VAT (which is odd, as my last AWS bill and the kindle book I bought both had vat)
- bhupy 6y ago
  That's because a VAT is charged directly, like a sales tax. It's its own line item. It's technically the government charging a tariff on the purchase, rather than the merchant passing on a cost via price increase, though in-effect indistinguishable to your wallet.
  - iso1210 6y ago
    He seems to be arguing that his online competitors don't have to charge VAT, then he says Amazon specifically charge VAT I assume he has <£500m revenue, so won't be charging the "digitial services tax", but he's complaining that large companies like Amazon do charge it (even though they don't - they pay the tax, just like they pay tax on people they employ, tax on fuel their delivery vehicles use, property based taxes on warehouses and offices, and indeed other overheads like rent on offices - unlike VAT they don't collect it on behalf of the government) Amazon seem to be making a political statement on their invoices. They don't have a line item of "London office tax" or other cost centres, only on this. They must be annoyed - they can't charge people more (because they would charge people more without that 2% extra -- they don't price their services based on a fixed profit margin, but on the maximum price they think they can charge before losing customers), so it must be hitting their bottom line (however slightly).
fredley 6y ago
This is an extremely opinionated article: > People will always support charging more taxes, as long as it isn’t them paying. I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use. > So, next time you see a tax aimed at the “rich” or a company bigger than yourselves, remember it will eventually hit you along with everyone else. This is extremely simplistic and troubling framing, and comes across as a whine. I suspect this outcome was expected, and Her Majesty's Government can sell this as a win to the electorate (look at us taxing the big tech!) while keeping their donors happy. The number of people who do notice/care, and their combined political clout is negligible, and that's the World we live in right now.
- logicchains 6y ago
  >I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use. Do you regularly donate to charity then? In UK it's actually possible to voluntarily pay extra tax, but doing that doesn't seem very popular: https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e45377ec https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e4537...
  - HenryBemis 6y ago
    Taxes have a ROI. I pay taxes, I get better roads, better schools, better XYZ that is provided by the state. Charity is filling up the gap of state blindness or inadequacy it leaves behind it. charity is the noblest of showing care, but please don't confuse it with taxes. We pay taxes, the state uses that money to build a road, we use toe road to go from A to B faster, cheaper, etc, so it is an invesmtne for us. Charity is to help someone else in need without seeking a ROI (I wish that all children get well and I don't want them to make a road for me).
  - fredley 6y ago
    Yes, although charity is problematic: it means priorities are set by those donating (and more by those donating more), rather than by need. All private schools in the UK operate as charities, for example. https://en.wikipedia.org/wiki/Eton_College#Charitable_status_and_fees https://en.wikipedia.org/wiki/Eton_College#Charitable_status...
jjar 6y ago
Can't seem to access this. Hug of death?
mhh__ 6y ago
Corporation tax tax seems totally unfit for purpose, it just means small companies pay tax and multinationals can dodge it. As a revenue raising effort I think DST is superior. The issue is that it's difficult to have a frank discussion about tax policy in the UK, because a lot of people basically view tax as a way of sticking one to the capitalists rather than actually doing good. We tax cigarettes to stop people smoking, we tax businesses because why? Their employees pay tax, NI, and their customers pay VAT. The public have a very naive view of business - some business's are exploitative, yes, but the reason why potentially unsavoury companies like Uber are doing well is because they are simply superior to their competitors. I don't want my own moral standards applied to every business transaction, let alone the Twitter mob.
- gruez 6y ago
  DST?
  - metiscus 6y ago
    I believe it means Digital Service Tax but I could be mistaken.
- TheOtherHobbes 6y ago
  We tax businesses because businesses benefit from public infrastructure - health care, education, physical infrastructure - and they're expected to make a contribution just like everyone else. In fact the UK is very bad at taxing corporations. It subsidises low wages with tax credits, which incentivise corporates to pay people poorly. London is also one of the capitals for money laundering (including crime proceeds) and offshore tax evasion - about to become even more so after Brexit. So the world would be a better place if basic moral standards were applied to all business transactions. Sadly they aren't, and that causes huge social and political distortions, as well as inconveniencing smaller businesses at the expense of large multinationals.
  - mhh__ 6y ago
    As I said, businesses already pay tax and should not go untaxed but why profits specifically? We have business rates for land, fuel duty for vehicles, VAT for customers, NI contributions etc. We also have a basic form of carbon tax for some businesses although it's not particularly fleshed out. By moral standards I mean people second guessing consenting economic transactions e.g. no one seems to ask people driving on Uber whether they want to be employees or not, because the Tories don't care and some elements of the Labour party view all employment as slavery of one kind or the other.

10 points by nickstan 6y ago

The problem here is that it permits tech companies to pass the bill on. These sorts of taxes need to account for the fact that the companies it's leveraged on are monopolies, and can raise prices without issue. They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee.

rlpb 6y ago
> They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee. This is simply not practical to implement or enforce.
- ocdtrekkie 6y ago
  At least one Russian lawmaker seems to plan to attempt it: https://www.macrumors.com/2020/09/02/russia-could-cap-apple-app-store-commission/ https://www.macrumors.com/2020/09/02/russia-could-cap-apple-...
  - metiscus 6y ago
    Russia has a long and storied history of working against economic gradients - it usually ends poorly.
- flak48 6y ago
  India tried to do this anyway when the new Goods and Services Tax was launched : http://gstcouncil.gov.in/anti-profiteering-mechanism http://gstcouncil.gov.in/anti-profiteering-mechanism Which led to issues like https://www.bloombergquint.com/business/higher-grammage-vs-lower-prices-how-to-pass-gst-benefit https://www.bloombergquint.com/business/higher-grammage-vs-l...
trentnix 6y ago
You're trying to hold a river back with your outstretched arms. Taxes are always passed on to the consumer because they are a cost of doing business. Raise taxes, you raise prices. Always. Only competitive pressure and consumer discernment will drive down the price.
- Retric 6y ago
  Taxing profits can’t be passed on. A company that maximizes profits can’t change it’s choices to suddenly make more profits because that’s what it’s already doing. At most they can hide profits via various loopholes intentionally left open, but that doesn’t impact customers.
  - metiscus 6y ago
    Assuming a perfectly spherical cow, if the tax is based on a percent of profit, the company can and will raise prices (if the market will bear it) to ensure that their gross profit numbers remain constant or continue to grow.
    - Retric 6y ago
      That assumes they are intentionally making less profit than possible at stage one. If even monopolies have limits, if the cheapest cellphone cost 2,000$ a month few people would have them thus lowering prices increases profits after a point.
      - robjan 6y ago
        If the company charges higher "just because" then it creates an inefficiency in the market and allows new products to enter the market at a lower price point. If they charge higher due to taxes it doesn't create this gap.
        Retric 6y ago
        Monopolies can always lower prices at any time a new player enters the market. Theoretical future competition has zero impact on current prices. Just look at what happens to drug prices when the original patent expires. Similarly, ISP prices maintain high until just before a new options become available. Simply announcing Google fiber was eventually going to enter a city did not instantly lower prices. Sure, eventually that happened but ISP continued to charge high prices until forced to lower them.
gruez 6y ago
>They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee. What's preventing them from selling a "localized" product that's 10% crappier (assuming 10% tax)?
- ocdtrekkie 6y ago
  The App Store, Play Store, and Ad Market don't really work that way: They're just rent-collectors on a market between developers and users. It would cost more to provide separate products than in other countries. They're just pure profit rent-seeking entities.
  - disgruntledphd2 6y ago
    I agree with you on the stores, but neither Google nor Facebook ads are rent-collectors in the traditional sense. To illustrate, consider a new ad network, which miraculously has access to all Google and Facebook users. Assuming that all is necessary is the market then this network should take 1/3rd of their revenue. However, this wouldn't happen as what people actually pay for is the optimisation of advertising, i.e. sending the ads to the "right" users such that costs can be controlled. Like, both of the companies are almost monopolies in terms of their consumer products, but they do in fact provide a very useful service to advertisers, and indeed have created a whole host of businesses that wouldn't have been possible without this optimisation.
    - ocdtrekkie 6y ago
      Both Google and Facebook want you to believe this. But while a Google-operated study found a 52% revenue benefit to targeted advertising, an independent academic study found a 4% benefit.
      - disgruntledphd2 6y ago
        Look, this stuff is not easy to measure, at all. It's even harder when the two largest platforms (i.e Goog and FB) won't co-operate (for potentially legitimate privacy reasons). On the other hand, I can assure you that for most niche brands/services (i.e. the ones that spend money on digital advertising), spending $1m dollars on CPM ads on everyone in your audience, versus spending $1mn dollars on optimised advertising will have wildly different impacts on your bottom line. Source: did a lot of ads measurement analysis over the past few years.

iso1210 6y ago

He's internally inconsistent. He complains amazon etc will simply pass on the cost, but he also complains that they don't have to pass on the cost of things like VAT (which is odd, as my last AWS bill and the kindle book I bought both had vat)

bhupy 6y ago
That's because a VAT is charged directly, like a sales tax. It's its own line item. It's technically the government charging a tariff on the purchase, rather than the merchant passing on a cost via price increase, though in-effect indistinguishable to your wallet.
- iso1210 6y ago
  He seems to be arguing that his online competitors don't have to charge VAT, then he says Amazon specifically charge VAT I assume he has <£500m revenue, so won't be charging the "digitial services tax", but he's complaining that large companies like Amazon do charge it (even though they don't - they pay the tax, just like they pay tax on people they employ, tax on fuel their delivery vehicles use, property based taxes on warehouses and offices, and indeed other overheads like rent on offices - unlike VAT they don't collect it on behalf of the government) Amazon seem to be making a political statement on their invoices. They don't have a line item of "London office tax" or other cost centres, only on this. They must be annoyed - they can't charge people more (because they would charge people more without that 2% extra -- they don't price their services based on a fixed profit margin, but on the maximum price they think they can charge before losing customers), so it must be hitting their bottom line (however slightly).

fredley 6y ago

This is an extremely opinionated article: > People will always support charging more taxes, as long as it isn’t them paying. I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use. > So, next time you see a tax aimed at the “rich” or a company bigger than yourselves, remember it will eventually hit you along with everyone else. This is extremely simplistic and troubling framing, and comes across as a whine. I suspect this outcome was expected, and Her Majesty's Government can sell this as a win to the electorate (look at us taxing the big tech!) while keeping their donors happy. The number of people who do notice/care, and their combined political clout is negligible, and that's the World we live in right now.

logicchains 6y ago
>I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use. Do you regularly donate to charity then? In UK it's actually possible to voluntarily pay extra tax, but doing that doesn't seem very popular: https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e45377ec https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e4537...
- HenryBemis 6y ago
  Taxes have a ROI. I pay taxes, I get better roads, better schools, better XYZ that is provided by the state. Charity is filling up the gap of state blindness or inadequacy it leaves behind it. charity is the noblest of showing care, but please don't confuse it with taxes. We pay taxes, the state uses that money to build a road, we use toe road to go from A to B faster, cheaper, etc, so it is an invesmtne for us. Charity is to help someone else in need without seeking a ROI (I wish that all children get well and I don't want them to make a road for me).
- fredley 6y ago
  Yes, although charity is problematic: it means priorities are set by those donating (and more by those donating more), rather than by need. All private schools in the UK operate as charities, for example. https://en.wikipedia.org/wiki/Eton_College#Charitable_status_and_fees https://en.wikipedia.org/wiki/Eton_College#Charitable_status...

jjar 6y ago

Can't seem to access this. Hug of death?

mhh__ 6y ago

Corporation tax tax seems totally unfit for purpose, it just means small companies pay tax and multinationals can dodge it. As a revenue raising effort I think DST is superior. The issue is that it's difficult to have a frank discussion about tax policy in the UK, because a lot of people basically view tax as a way of sticking one to the capitalists rather than actually doing good. We tax cigarettes to stop people smoking, we tax businesses because why? Their employees pay tax, NI, and their customers pay VAT. The public have a very naive view of business - some business's are exploitative, yes, but the reason why potentially unsavoury companies like Uber are doing well is because they are simply superior to their competitors. I don't want my own moral standards applied to every business transaction, let alone the Twitter mob.

gruez 6y ago
DST?
- metiscus 6y ago
  I believe it means Digital Service Tax but I could be mistaken.
TheOtherHobbes 6y ago
We tax businesses because businesses benefit from public infrastructure - health care, education, physical infrastructure - and they're expected to make a contribution just like everyone else. In fact the UK is very bad at taxing corporations. It subsidises low wages with tax credits, which incentivise corporates to pay people poorly. London is also one of the capitals for money laundering (including crime proceeds) and offshore tax evasion - about to become even more so after Brexit. So the world would be a better place if basic moral standards were applied to all business transactions. Sadly they aren't, and that causes huge social and political distortions, as well as inconveniencing smaller businesses at the expense of large multinationals.
- mhh__ 6y ago
  As I said, businesses already pay tax and should not go untaxed but why profits specifically? We have business rates for land, fuel duty for vehicles, VAT for customers, NI contributions etc. We also have a basic form of carbon tax for some businesses although it's not particularly fleshed out. By moral standards I mean people second guessing consenting economic transactions e.g. no one seems to ask people driving on Uber whether they want to be employees or not, because the Tories don't care and some elements of the Labour party view all employment as slavery of one kind or the other.