Amazon plays cat and mouse with the digital tax

When US and EU negotiators failed to agree an international digital tax that would enable national governments to restore to state coffers at least a fraction of the taxes regularly dodged by tech giants like Amazon, Google and Facebook, the British government tried to go ahead unilaterally with its own tax on digital services.

The government, whilst sorely in need of a cash-infusion for the exchequer, is also uneasy that the growing public anger against freeloaders like Amazon getting away with murder could spill over into a broader hostility to capitalism itself. It needed at least a symbolic gesture, however hollow.

Rishi Sunak, noting that the pandemic had made the tech giants even more powerful and profitable, struck a pose: they needed to “pay their fair share of tax”.

But as the details of Britain’s shiny new digital services tax came to light, it became clear that, once again, it is the ‘little people’, the smaller, independent companies, that are to bear the brunt of taxation whilst massive online companies like Amazon continue to get off scot-free, laughing all the way to the bank.

The digital services tax is not levied on sales as such, but on the service fees that Amazon and others charge third parties. This was supposed to be a cunning device whereby traditional retailers like John Lewis, who now sell online as well, would be exempt from the tax. The aim was to concentrate fire on the Amazons and Googles.

However, it turns out the great beasts of the tech jungle once again pass unscathed. Since sales as such are not in the firing line, Amazon can sell as much as it likes without falling foul of the 2 percent digital tax. All that gets taxed is the fees that smaller companies pay to Amazon for the privilege of using its platform.

And that’s not an issue: Amazon can simply push up the fees it charges to the small fry to compensate for the 2 percent digital tax. Problem solved.