Consumers likely to pay price for Digital Services Tax

Even though both Facebook and eBay have insisted they will not pass on the costs of the new UK Digital Services Tax to advertisers, most tech giants are likely to do just that, in a move which could ultimately see costs passed on again to consumers in higher prices.

The new levy, effective from April 1 2020, saw the UK join France and Italy who have already implemented similar taxes. The UK tax is charged at 2% on revenues made by “large” tech businesses that provide a social media service, search engine or online marketplace to British users.

Under the scheme, a business is deemed large if (judged on a consolidated group-wide basis) it has in-scope annual global revenues of more than £500m and more than £25m of those are attributable to UK sales. The first £25m of revenue derived from UK sales is excluded from the tax.

The tax is designed to raise funds from the tech giants who use labyrinthine-style tax systems mean they avoid paying up the sums most companies face.

Yet with Google and Amazon already revealing they will pass the cost on to advertisers, industry observers reckon most firms will soon follow suit, even though eBay has already said it will not pass on the tax, and Facebook has confirmed it will follow suit.

Facebook’s announcement has been welcomed by the IPA, whose director of media affairs Nigel Gwilliam said: “As well inflating advertiser cost, Google’s decision will cause agencies significant logistical headaches, both in campaign budget terms and in inter-platform/media owner effectiveness comparisons, at a time when they are already battling Covid-related pressures.

“We very much welcome Facebook’s decision not to follow suit and to absorb this temporary UK tax while a global, permanent solution is found.”

However, brand owners advertising through Amazon, Google Ads or YouTube will now be charged an extra 2% in the UK from November 1.

Google said: “Digital service taxes increase the cost of digital advertising. Typically, these kinds of cost increases are borne by customers and, like other companies affected by this tax, we will be adding a fee to our invoices, from November.

“We will continue to pay all the taxes due in the UK, and to encourage governments globally to focus on international tax reform rather than implementing new, unilateral levies.”

David Jinks, head of consumer research at delivery company ParcelHero, is in no doubt about who will be the ultimate loser.

He said: “Online sellers need to spend money on Google Ads to keep their products visible. For example, a UK advertiser who spends £6,000 on Google for clicks in December will pay an additional £120 (representing 2%) in digital tax fees. That will make their final bill £6,120 plus VAT.

“In all likelihood, that £120 will be passed on to their customers through an increase in prices.”