Debate lingers over Digital Service Tax
With the growth of the digital economy worldwide and world economies quickly moving from physical assets to digital ones, countries are mulling over levying taxes on digital products and services. In fact, some governments have started implementing the scheme.
A Digital Service Tax or DST is a tax on selected gross revenue streams of large digital companies. Digital taxes also include policies targeting businesses that provide products or services through digital means using a special tax rate or tax base.
In March 2021, the EU policymakers intensely debated the introduction of a single EU-wide system of digital taxes. However, they had some disagreements and failed to achieve a general solution.
France introduced a digital services tax in 2019 at 3% on a tax base of digital services revenue. This, according to Gareth O. Williams, a tax expert, indicates that the effective burden cannot be borne by the corporation and is shared (in some proportion) between shareholders, employees, and customers. Accordingly, Netflix raised its prices in France in 2019.
Meanwhile, Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland stated in 2021 that the Canadian Federal Government intends to move ahead with legislation finalizing the enactment of a Digital Services Tax (DST) by 1 January 2022. However, the statement added that the DST would only be imposed as of 1 January 2024 rather than 1 January 2022. The DST would apply at a rate of 3 percent on specific revenue earned by large businesses from certain digital services reliant on the engagement, data and content contributions of Canadian users and certain sales or licensing of Canadian user data.
In the same vein, the Government of Kenya introduced the Digital Service Tax (DST) with effect from 1 January 2021.
Formidable challenge fuels debate
According to the Tax Foundation, political debates have focused on the differences between taxing physical business operations and virtual operations. According to the Foundation, these debates have intersected with multiple layers of tax policy, including consumption and corporate tax policies.
With more governments considering Digital Service Tax, the debate is still lingering about the very definition of the term and the scope of implementation.