The UK government is reportedly weighing the reduction or elimination of its Digital Services Tax (DST) before April 2nd to mitigate potential trade tariffs from the US under President Donald Trump. Introduced in April 2020, the DST imposes a 2% levy on the gross revenues of digital companies operating search engines, social media platforms, and online marketplaces in the UK. According to a report in Bloomberg, the UK Treasury is exploring various options for modifying the tax, based on proposals from the Department for Business and Trade, according to sources familiar with the discussions. These potential changes do not include company-specific exemptions.
Understanding UK’s Digital Services Tax (DST)
The UK’s Digital Services Tax or DST targets large digital companies generating substantial revenue from UK users. It taxes revenue, not profits, at a 2% rate. In its first year, the DST generated approximately £360 million from US tech giants like Amazon, Google, and Apple, often exceeding their UK corporation tax payments.
The discussions follow US opposition to the tax during talks on a “new economic deal” between the US President Trump and the UK Prime Minister Keir Starmer. The levy, impacting companies like Google, Microsoft, Facebook, Instagram and Amazon, has been unpopular with the American companies.
Starmer’s government faces a dilemma: balancing the £800 million annual revenue from the DST against the risk of US tariffs. Additionally, there’s concern about the perception of US influence over UK tax policy. Trump is reviewing US trading partners for “reciprocal” tariffs, potentially including various UK fiscal and regulatory policies.
Key Factors Influencing Potential Removal
The UK’s decision hinges on the severity of potential US tariffs and the degree to which modifying the DST would lessen their impact. The government is open to changes if the US offers a concrete tariff exemption, though discussions are in early stages.
Not everyone in the UK industry happy with DST
While some in the UK government view the DST as hindering economic growth and US trade relations, scrapping it could face opposition from Labour MPs. They are critical of welfare cuts and advocate for increased contributions from businesses and the wealthy.
