Having sparked an international ruckus before its introduction on 1 April 2020, the UK digital services tax may turn out to be a nice little earner for the Treasury – in part thanks to the coronavirus.
The digital services tax applies at the rate of 2 per cent to the revenues of businesses which provide search engines, social media services and online marketplaces to UK users. There is a let-out for smaller tech companies having worldwide revenues of less than £500 million, with less than £25 million derived from UK users.
Treasury figures suggest that this new tax could raise £500 million per year once it is fully established. Before the coronavirus struck, it was estimated that the tax would raise £280 million in 2020/21, its first year of operation.
Since those figures were produced, the UK has entered lockdown. As a result of people working from home, telecoms providers are reporting a major shift from business and academic networks to mobile and home broadband networks. While sending work emails, updating databases and writing reports have minimal data impact, the surge of data-hungry tasks such as video-streaming and gaming, occurring in tandem with remote working, is fuelling the surge.
Estimates vary widely. Vodafone reports a 50 per cent jump in traffic, while Openreach said that daytime data consumption has almost doubled. But there’s no denying that this increase in traffic will boost payments of the digital services tax.
It’s too early to provide firm estimates but it’s possible to make an initial stab at how much more will have to be paid. Let’s start with the pre-coronavirus estimate of £280 million for 2020/21. If taxable revenues of the tech companies have increased by only 50 per cent, which seems a very cautious estimate in the light of Openreach’s statement, then the extra amount of digital services tax payable will be £140 million. To put that another way, for every week of lockdown the digital services tax yield will increase by £2.7 million above the Treasury figures. At today’s inflating prices, that will pay for 250,000 boxes of 100 medical gloves every single week.