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When Indonesia looked for new ways to finance government spending on coronavirus relief last month, the world’s fourth most populous nation focused on an engine of the economy that was still healthy: the Internet.
“We decided to tax digital companies with an electronic transaction tax because their sales skyrocketed amid the Covid-19 outbreak,” Finance Minister Sri Mulyani Indrawati said at a press conference. Citing services like Zoom and Netflix, he said “their economic activities are enormous.”
And who could blame her? Tax authorities looking at Canberra’s budget deficit at Copenhagen are looking for any form of trade and consumption that they can tax. Coveted long before the pandemic, digital revenue is becoming an even more likely target.
But it won’t be that simple. Such efforts are likely to add to the annoyance of the President of the United States, Donald Trump, because many of the most popular e-commerce services, from social media to video streaming and online retail, are American companies, and he wants those new taxes for your scarce treasure.
While the pandemic decimates large sectors of traditional industries, home stay policies have influenced the strengths of companies such as Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc, Alphabet Inc and Microsoft Corp. Collectively generated around of US $ 234 bil (RM1.01tril) in income in the first quarter, 14% more than the previous year.
A report last week from the United Nations Conference on Trade and Development said global e-commerce sales totaled nearly $ 26 tril (RM112.69 tril) in 2018, equivalent to nearly a third of the world’s gross domestic product. .
Such windfalls tend to draw the attention of red-drowned finance ministry officials.
“There are a lot of financial pressures due to the bailouts,” said Stuart Harbinson, a former World Trade Organization official and senior consultant on international trade for the Brussels-based communications agency Hume Brophy. “People need income.”
European push
Six nations in Europe (Austria, France, Hungary, Italy, Turkey and the United Kingdom) have already announced plans for a digital services tax and at least six others, the Czech Republic, Slovakia, Spain, Latvia, Norway and Slovenia, They have discussed implementation one.
“Digital giants will be the main beneficiaries of this crisis, so taxing them has never been more necessary,” French Finance Minister Bruno Le Maire told Bloomberg.
The health crisis came at an already delicate time in a global effort to develop a multilateral digital tax agreement at the Paris-based Organization for Economic Cooperation and Development.
Although OECD negotiators have pledged to forge a comprehensive deal this year, some business groups, including the US Council on International Business. In the USA, they have called for a break in the negotiations during the pandemic. The groups cite travel limitations and other limitations as key obstacles to reaching an agreement this year, something that even top OECD officials acknowledge.
“It is extremely difficult to negotiate without knowing people physically,” said Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration.
Among the main proponents of an international deal are Trump and the United States Secretary of the Treasury, Steven Mnuchin, who want to dissuade nations from unilaterally diverting tax revenues from the United States’ internet giants.
In February, the OECD said that updating global tax rules could be worth up to $ 100bil (RM433.45bil) in government revenue. That would hardly affect the US $ 3.7tril (RM16.03tril) budget deficit facing the United States this year, but smaller economies are eager to get a share.
Last year, Trump issued a strong warning to world finance ministers when he threatened to impose 100% tariffs on the value of French wine, cheese and makeup worth 2.4 billion US dollars (RM10, 40 thousand) in retaliation for France’s digital services tax.
“If anyone is going to take advantage of American companies, it will be us,” Trump said last year. “It won’t be France.”
While the threat resulted in a temporary truce with France, the massive economic cost of the coronavirus is becoming a more persuasive factor for other nations.
Tariff threats
Governments are calculating whether the long-term cost of Trump’s tariff threat exceeds the potential of billions of dollars in new digital revenue. Nations are also evaluating whether the threat from Trump’s tariffs has less influence if the U.S. economy cannot withstand a new global wave of damaging tariff wars.
“The threat that the United States will take trade sanctions against countries that introduce taxes on digital services, I am not sure, is as efficient as it was before the crisis,” Saint-Amans said during a recent webinar. “The French were very unhappy with the threat and many other countries hesitated. Now the countries are moving.”
New digital taxes could also jeopardize the WTO’s efforts to forge a comprehensive electronic commerce agreement aimed at harmonizing the rules of the digital economy.
The European Union, EE. The US, China and 46 other WTO members are negotiating new rules to regulate the use of cross-border data flows, data location policies, privacy, cybersecurity, and a permanent moratorium on e-commerce duties.
Since 1998, the 164 WTO members have periodically agreed to continue their practice of not imposing customs duties on electronic transmissions. The moratorium was last renewed in December and will remain until the WTO holds its next ministerial conference, which was postponed due to the pandemic.
But the WTO moratorium and e-commerce talks could crumble if nations decide to impose unilateral digital taxes before the talks end.
“Some countries, especially in Europe, are likely to turn to digital businesses for income,” said Joe Kennedy, principal investigator for the Washington-based Foundation for Information Technology and Innovation. “The temptation to ignore international rules on allocating taxable income to countries will likely increase.” – Bloomberg
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