Don’t Tax the Digital Domain

Ross Marchand
Reuters

Ross Marchand

Economics, Americas

The G20 should make it easier, not harder, for new companies to challenge the dominant internet players.

Don’t Tax the Digital Domain

Every day, billions of denizens of the digital domain buy goods, find news, and locate business opportunities online. The internet’s reputation as a reliable go-to for tackling life’s challenges, though, may soon change as finance ministers across the G20 ready plans for a crippling new “digital services tax.” If public officials from around the world have their way, consumers would face higher prices and worse access to the sites they rely on to live their lives. Instead of imposing onerous taxes, governments across the globe should step aside and allow for continued innovation across the internet. 

Since the start of the decade, public officials across the developed world have lamented the tendency of “greedy” tech companies to “park” in tax-competitive jurisdictions such as Ireland. Governments want their slice of the action, and on June 8, a group of G20 finance ministers agreed to “close loopholes” that they claim tech companies use to shift around income and keep tax bills low. Through raising taxes on Facebook, Google, and Apple, and their countless startup competitors, governments naively hope to raise billions of dollars that they could use to prop up decaying infrastructure and defray soaring pension costs. 

But higher taxes would mean mass misery, as consumers face the prospect of having to pay for searches or their favorite social networks. In reviewing what the evidence has to say about the impact of digital taxation, consultancy PricewaterhouseCoopers notes, “consumers bear the burden of indirect taxes such as turnover taxes, value-added taxes, excise taxes, and sales taxes in the form of higher prices...” 

Most digital services provided by companies such as Facebook and Google are currently free of charge, and tacking on any fees to basic products would hamper millions of users that have come to rely on their services. Additionally, for countless small businesses and entrepreneurs that benefit from Google and Facebook’s advertising businesses, higher fees could make services only available to larger companies with a treasure trove of resources. 

In crafting ideal digital tax policy, though, countries around the world should also keep in mind the search engines and social media platforms of the future. Before leading tech companies obtained a critical mass of internet users flocking to their websites, they built out their networks and spent years in the red. 

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