UK chancellor Philip Hammond revealed his budget plans for the year ahead, including the introduction of a digital services ad tax. The new ‘digital ad tax’ will come in to force in April 2020 and the levy will be charged at a rate of 2% and only apply against revenue from search engines, social media platforms, and online marketplaces, affecting tech giants such as Facebook, Amazon, and Google.

Hammond predicts it is expected to generate more than £400 million a year and the UK would introduce the tax on online firms that are profitable and make more than £500 million per year in global revenue.

“The rules of the game must evolve now if they are to keep up with the digital economy,” Hammond said in Parliament. He continued to state that “this is not an online sales tax on goods ordered over the internet.”

At the moment, companies pay tax only on UK profits. According to research carried out by the campaign group Tax Watch, five of the biggest tech firms (Facebook, Google, Apple, Microsoft, and Cisco) strip the exchequer of £1 billion a year. Companies have been accused of falsely reporting or reducing profits in order to pay less tax.

However, the industry warns that digital tax services could discourage tech investment. The IAB stated that the tax could well a pose “disincentive for competitors to set up and grow in the UK” and “may also impact on mid-market players who drive competition and provide choice.”

The digital economy 

The move comes at a time of economic uncertainty for the UK digital climate, although the likes of the AA welcomed the budget plans, stating that tax changes should not weaken the UK’s global competitiveness and it is only right that these global giants pay their fair share.

In his budget plans, Hammond also stated that some of the co-funding has been set aside to create a ‘Future High Streets Fund’ to support councils in planning the future of their high streets. Although a step forward for high street retailers, this move alone will not save the high street as retailers need to start investing in technologies to keep up with consumer’s ever-changing habits.

Is this the right approach at the right time? Tell us your thoughts in the comment section below and tweet us at @PerformanceIN.