UK scores an own goal with its Digital Services Tax | Hacker News Reader

UK scores an own goal with its Digital Services Tax

ekm.com

10 pointsnickstan42 comments

This is an extremely opinionated article:

> People will always support charging more taxes, as long as it isn’t them paying.

I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use.

> So, next time you see a tax aimed at the “rich” or a company bigger than yourselves, remember it will eventually hit you along with everyone else.

This is extremely simplistic and troubling framing, and comes across as a whine. I suspect this outcome was expected, and Her Majesty's Government can sell this as a win to the electorate (look at us taxing the big tech!) while keeping their donors happy. The number of people who do notice/care, and their combined political clout is negligible, and that's the World we live in right now.

>I would happily pay more taxes, personally, in exchange for better social care and schools, public services I do not use.

Do you regularly donate to charity then? In UK it's actually possible to voluntarily pay extra tax, but doing that doesn't seem very popular: https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e4537...

Taxes have a ROI. I pay taxes, I get better roads, better schools, better XYZ that is provided by the state.

Charity is filling up the gap of state blindness or inadequacy it leaves behind it. charity is the noblest of showing care, but please don't confuse it with taxes.

We pay taxes, the state uses that money to build a road, we use toe road to go from A to B faster, cheaper, etc, so it is an invesmtne for us. Charity is to help someone else in need without seeking a ROI (I wish that all children get well and I don't want them to make a road for me).

Yes, although charity is problematic: it means priorities are set by those donating (and more by those donating more), rather than by need.

All private schools in the UK operate as charities, for example. https://en.wikipedia.org/wiki/Eton_College#Charitable_status...

And it's further complicated by Gift Aid. Seems like a good idea on paper : the charity receives your donation plus the amount of income tax you paid when you earned the money you donated [1]. Looks like everyone wins except the tax man and no-one like him anyway. Except what actually happens is that you're taking tax away from things that it would have otherwise funded like schools and hospitals. So when you Gift Aid your donation to the donkey sanctuary you are essentially saying "I value these donkeys more than I value educating kids or treating the sick". Maybe you really do think donkeys are more valuable than kids and the sick but you're making an individual decision that harms the collective population.

[1] https://www.gov.uk/donating-to-charity/gift-aid

Can someone gift the money to the donkey sanctuary without taking the tax benefit, so as to not deprive the children, the sick and the military

It appears you are donation shaming - saying the government has a better idea of what to do with tax money than an individual donor

The problem here is that it permits tech companies to pass the bill on. These sorts of taxes need to account for the fact that the companies it's leveraged on are monopolies, and can raise prices without issue.

They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee.

> They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee.

This is simply not practical to implement or enforce.

At least one Russian lawmaker seems to plan to attempt it: https://www.macrumors.com/2020/09/02/russia-could-cap-apple-...

Russia has a long and storied history of working against economic gradients - it usually ends poorly.

India tried to do this anyway when the new Goods and Services Tax was launched : http://gstcouncil.gov.in/anti-profiteering-mechanism

Which led to issues like https://www.bloombergquint.com/business/higher-grammage-vs-l...

You're trying to hold a river back with your outstretched arms. Taxes are always passed on to the consumer because they are a cost of doing business. Raise taxes, you raise prices. Always.

Only competitive pressure and consumer discernment will drive down the price.

Taxing profits can’t be passed on. A company that maximizes profits can’t change it’s choices to suddenly make more profits because that’s what it’s already doing. At most they can hide profits via various loopholes intentionally left open, but that doesn’t impact customers.

Assuming a perfectly spherical cow, if the tax is based on a percent of profit, the company can and will raise prices (if the market will bear it) to ensure that their gross profit numbers remain constant or continue to grow.

That assumes they are intentionally making less profit than possible at stage one. If even monopolies have limits, if the cheapest cellphone cost 2,000$ a month few people would have them thus lowering prices increases profits after a point.

If the company charges higher "just because" then it creates an inefficiency in the market and allows new products to enter the market at a lower price point. If they charge higher due to taxes it doesn't create this gap.

Monopolies can always lower prices at any time a new player enters the market. Theoretical future competition has zero impact on current prices. Just look at what happens to drug prices when the original patent expires.

Similarly, ISP prices maintain high until just before a new options become available. Simply announcing Google fiber was eventually going to enter a city did not instantly lower prices. Sure, eventually that happened but ISP continued to charge high prices until forced to lower them.

You mean monopolies are always passing taxes onto its customers.

If companies in given segment can just pass tax onto its customers , it means that the competition is effectively dead. And its a syndicate economy since those companies cooperate and not compete.

That's not true. If the cost to produce goods & services increases uniformly for every seller, then the price will increase, unless a merchant is able to absorb the increased cost to produce the goods & services while maintaining the same price. But if that's the case, then there was already a market inefficiency to begin with.

Yes that why we have CEO's and executives swimming in money. Its because their businesses are 'competing'.

What you are giving example off is a owner of sugar plant not being able to lower price on sugar and fluctuation in price of sugar beets would kill the business.

But that is not a root issue. There is not much money in tax there either.

Its the tax dodging monolithic industries that are the problem. And their margins are able to absorb the cost multiple times over.

> Yes that why we have CEO's and executives swimming in money.

That's totally orthogonal though. Competitive businesses can absolutely have highly paid executives. All you have to do is run the arithmetic of how much you can reduce the unit price of a mass-produced good/service by dividing all of the highly paid executives' salaries/compensation. The answer is not very much.

Consider that Uber is not a profitable business, at the moment, and yet their CEO is compensated $50M. It doesn't take a genius to determine that merely distributing his high salary across the millions of drivers (or software engineers) or even trip riders does close to nothing for the unit economics of the business.

> Its the tax dodging monolithic industries that are the problem. And their margins are able to absorb the cost multiple times over.

But the tax isn't targeted at "tax dodging monolithic industries", it's universally applied. Not every "digital" company is FANG, there are hundreds of thousands of small SaaS businesses that would be affected too. The distortionary effects are almost always unintended. There is an entire sub-field in economics dedicated to researching "tax incidence" -> https://scholar.google.com/scholar?hl=en&as_sdt=0,33&qsp=1&q...

Another way of looking at this is that if the company thought they could charge higher prices, they'd have raised prices already. They don't need tax as an excuse.

That's not how prices work. Eg. if the price of gas increases, then airline ticket prices increase. It's not that the airline companies didn't think that they could increase their prices before, it's just that the cost of providing an airline ticket changes over time, and thus so does the price.

A tax achieves a similar outcome.

Both can happen. A producer can increase prices unilaterally (that is without an increase in the costs of production). In this case the producer can be undercut by those accepting a greater volume of sales for lower margins. When an increase in the costs of production happens, for a sufficiently spherical cow, the price level will rise across all producers depending on several factors including the elasticity of demand and consumer indifference. In the case of the tax, it is not entirely clear as to which specific case applies. Privately held companies may be more willing to maintain market share by eating a portion of the profits where a publicly held company will have a driving force to maintain its total margin.

Yup, that's certainly true, especially in uncompetitive markets.

On average, though, the empirical evidence ranges from inconclusive to supportive: https://scholar.google.com/scholar?hl=en&as_sdt=0,33&qsp=1&q...

And the problem is that Google, Apple, and Amazon face no competitive pressure. (This is why monopolies are basically the ultimate loophole in capitalist systems.) So short of breaking them up, governments need to introduce price ceilings that begin to make up for the lack of competition.

All three are protected by the government in various ways. Amazons entire business was largely built by the government neglecting to enforce sales tax. They had an 8.25% advantage, for many many years, over every brick and mortar competitor in my area.

Where monopolies (or more precisely, market dominance by a single player) exist, crony capitalism almost always exist.

>They should've coupled this tax with a ban on raising their rates or passing it on as an additional fee.

What's preventing them from selling a "localized" product that's 10% crappier (assuming 10% tax)?

The App Store, Play Store, and Ad Market don't really work that way: They're just rent-collectors on a market between developers and users. It would cost more to provide separate products than in other countries. They're just pure profit rent-seeking entities.

I agree with you on the stores, but neither Google nor Facebook ads are rent-collectors in the traditional sense.

To illustrate, consider a new ad network, which miraculously has access to all Google and Facebook users. Assuming that all is necessary is the market then this network should take 1/3rd of their revenue.

However, this wouldn't happen as what people actually pay for is the optimisation of advertising, i.e. sending the ads to the "right" users such that costs can be controlled.

Like, both of the companies are almost monopolies in terms of their consumer products, but they do in fact provide a very useful service to advertisers, and indeed have created a whole host of businesses that wouldn't have been possible without this optimisation.

Both Google and Facebook want you to believe this. But while a Google-operated study found a 52% revenue benefit to targeted advertising, an independent academic study found a 4% benefit.

Look, this stuff is not easy to measure, at all.

It's even harder when the two largest platforms (i.e Goog and FB) won't co-operate (for potentially legitimate privacy reasons).

On the other hand, I can assure you that for most niche brands/services (i.e. the ones that spend money on digital advertising), spending $1m dollars on CPM ads on everyone in your audience, versus spending $1mn dollars on optimised advertising will have wildly different impacts on your bottom line.

Source: did a lot of ads measurement analysis over the past few years.

He's internally inconsistent. He complains amazon etc will simply pass on the cost, but he also complains that they don't have to pass on the cost of things like VAT (which is odd, as my last AWS bill and the kindle book I bought both had vat)

That's because a VAT is charged directly, like a sales tax. It's its own line item. It's technically the government charging a tariff on the purchase, rather than the merchant passing on a cost via price increase, though in-effect indistinguishable to your wallet.

He seems to be arguing that his online competitors don't have to charge VAT, then he says Amazon specifically charge VAT

I assume he has <£500m revenue, so won't be charging the "digitial services tax", but he's complaining that large companies like Amazon do charge it (even though they don't - they pay the tax, just like they pay tax on people they employ, tax on fuel their delivery vehicles use, property based taxes on warehouses and offices, and indeed other overheads like rent on offices - unlike VAT they don't collect it on behalf of the government)

Amazon seem to be making a political statement on their invoices. They don't have a line item of "London office tax" or other cost centres, only on this. They must be annoyed - they can't charge people more (because they would charge people more without that 2% extra -- they don't price their services based on a fixed profit margin, but on the maximum price they think they can charge before losing customers), so it must be hitting their bottom line (however slightly).

Can't seem to access this. Hug of death?

Corporation tax tax seems totally unfit for purpose, it just means small companies pay tax and multinationals can dodge it. As a revenue raising effort I think DST is superior.

The issue is that it's difficult to have a frank discussion about tax policy in the UK, because a lot of people basically view tax as a way of sticking one to the capitalists rather than actually doing good. We tax cigarettes to stop people smoking, we tax businesses because why? Their employees pay tax, NI, and their customers pay VAT. The public have a very naive view of business - some business's are exploitative, yes, but the reason why potentially unsavoury companies like Uber are doing well is because they are simply superior to their competitors. I don't want my own moral standards applied to every business transaction, let alone the Twitter mob.

DST?

I believe it means Digital Service Tax but I could be mistaken.

We tax businesses because businesses benefit from public infrastructure - health care, education, physical infrastructure - and they're expected to make a contribution just like everyone else.

In fact the UK is very bad at taxing corporations. It subsidises low wages with tax credits, which incentivise corporates to pay people poorly. London is also one of the capitals for money laundering (including crime proceeds) and offshore tax evasion - about to become even more so after Brexit.

So the world would be a better place if basic moral standards were applied to all business transactions. Sadly they aren't, and that causes huge social and political distortions, as well as inconveniencing smaller businesses at the expense of large multinationals.

As I said, businesses already pay tax and should not go untaxed but why profits specifically? We have business rates for land, fuel duty for vehicles, VAT for customers, NI contributions etc. We also have a basic form of carbon tax for some businesses although it's not particularly fleshed out.

By moral standards I mean people second guessing consenting economic transactions e.g. no one seems to ask people driving on Uber whether they want to be employees or not, because the Tories don't care and some elements of the Labour party view all employment as slavery of one kind or the other.

Corporation tax is paid by small Ltd company owners (usually employees). It replaces NI at a higher rate. Similarly dividend tax is paid by the same people replacing income tax. Neither are paid by big companies. They should be renamed, as currently they do a job, but are very misleading...

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