A new report from the Public Accounts Committee (PAC) shows that the “temporary” digital services tax (DST) could stay in place longer than planned.
The DST raised £358 million in its first year – 30% more than expected. However, the Treasury says that it is a “second best” solution until the Organisation for Economic Co-operation and Development introduces a more permanent international tax deal.
The PAC warns that delays to this deal could cause larger tech companies to circumvent the tax.
The Government introduced the DST in 2020 as a temporary measure to address multinational businesses avoiding UK corporation tax. It charges a 2% levy on the revenues of search engines, social media services and online marketplaces that make money from UK users.
According to the Chartered Institute of Taxation (CIOT), the DST risks becoming a permanent part of the UK tax system.
John Cullinane, director of public policy at CIOT, said that the fact that the tax still exists represents a “failure”. He continued:
“A revenue tax such as this is a blunt instrument that cannot accurately represent the tax on the profits generated in the UK. It will inevitably over-tax some companies and under-tax others.”
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