Budget 2018: Office for Budget Responsibility releases its costing on the Digital Services Tax

Turnover tax on Amazon, Facebook and Google will raise £275m in 2020-21

The Office for Budget Responsibility (OBR) has released its costings over the government's proposed Digital Services Tax, revealing that the new turnover tax targeting internet giants will raise just £275 million in the first year.

It won't be until the tax year 2022-23 that it will raise the £400 million mentioned by Chancellor Philip Hammond in today's budget, and £440 million the year after, according to the OBR's forecasts.

The tax will apply to all businesses in the activities mentioned by the Chancellor - search engines, social media platforms, and online marketplaces - where those businesses can boast global revenues of £500 million within the aforementioned activities, and with at least £25 million in revenues "linked to the participation of UK users".

Furthermore, the OBR points out, the first £25 million in revenues in the scope of the tax will not be taxable.

"The measure will also include a safe harbour provision that will allow businesses with very low profit margins to make an alternative calculation of their tax liability," the OBR document points out, although the details of this alternative calculation are not clear at this moment.

The expected sum to be raised from the tax has been calculated, the OBR adds, by collecting data on revenues generated in recent years by companies that will fall under the scope of the tax, and projecting forward.

The main area of uncertainty, according to the OBR, relates to the size of the tax base, although it makes no mention of the impact of an economic recession on the expected tax take.

It may also provoke a response from the US government, which may argue that the tax is designed to exclusively target US businesses.

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