Opinion Former Article

Digital Services Tax not a panacea for the high street

The Chartered Institute of Taxation (CIOT) is tempering expectations that the planned UK Digital Services Tax is a cure for ailing high streets.

The CIOT makes this point in a submission to the House of Commons Treasury Committee’s inquiry on the Impact of Business Rates on Business.1 The Committee is examining how business rates policy has changed, including business rates retention and alternatives to property-based taxes, such as the proposed UK Digital Services Tax.

John Cullinane, CIOT Tax Policy Director, said:

“The Digital Services Tax (DST) should not be seen as a panacea for the problems of ‘bricks and mortar’ high street shops.

“Questions around business rates and the drivers for the DST are very different issues. The DST is about the UK getting what is sees as the right share of international tax on profits based on value added by users – and not a tax on online sales more generally.

“The DST is expected to raise £440 million by 2023-24 and affect mainly large multinational businesses that operate search engines, social media platforms and online marketplaces. As such DST has a wholly different focus to business rates.

“Business rates are a tax on the occupation of business premises such as shops, offices and warehouses. Rates are charged on the land and the buildings on it. They raise significant revenues forecast to be in the region of £31 billion annually.2 But business rates are criticised, notably by economists, because much of land is exempt or given reliefs, and taxing buildings means imposing a cost on business and specifically on the value of improvements.”

John Cullinane added:

“Economists caution against removing business rates suddenly, or failing to tax land values at all, as ultimately, that would give windfall gains to current owners.

“Those who share the view that the real economic burden of the tax falls significantly on landowners might prefer it if the legal structure of the tax were brought fully in line with this. This would be a significant change requiring extensive consultation.

“In any event, those who believe that the tax system should be used to help the high street hold its own better in the digital economy should not think of the Digital Services Tax as a plausible way of doing it.”
 

Notes for editors

1. The Treasury Committee has published CIOT’s submission here.

More information on The impact of Business Rates on business inquiry can be found on the Treasury website here.

2. The statistics on Digital Services Tax are taken from the Budget 2018 ‘Red Book’ Table 2.1, p.38 (here). The statistic on business rates is taken from Budget 2018 'Red Book' Chart 2, p.5 (here).

The Government has announced that it will introduce a new Digital Services Tax in April 2020 However, the Government will continue to lead efforts with its partners in the EU, G20 and OECD to reach international agreement on future reforms to the international corporate tax framework, and will dis-apply the DST when an appropriate international solution is in place.

3. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk

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