Cash-strapped governments are leaning toward a new regulatory regime in the wake of pandemic relief efforts.
Lawmakers in the Philippines have proposed legislation that would tax digital platforms to boost the government’s pandemic recovery efforts.
The bill was introduced by Congressman Joey Salceda, chair of the parliament’s Ways and Means Committee. It aims to raise 29 billion pesos ($571 million) by imposing a value added tax on digital services provided by tech giants like Alphabet, Facebook, Google, Netflix and Spotify as well as digital retailers like Lazada and Shopee.
The idea is to tap into the country’s growing digital economy that has surged during the country’s 66-day lockdown period and compel tech companies to pay their fair share.
“Simply put, these are not new taxes,” Salceda wrote in a public statement on Tuesday to explain the bill. “These are tax administration measures that we hope will capture the value more fairly…Especially when local businesses are struggling due to Covid-19, and there are these companies that are making a killing because of isolation, but are not paying enough taxes.”
Salceda added, “It sends a strong signal to the world that the Philippines is ready for the digital transformation. We are putting our taxation in order.”
He added that the funds raised would be used to invest in a national broadband project and e-learning programs.
Digital revenue reservoirs
The move follows a similar step taken a few days ago by Indonesia, which will slap a 10 percent tax on digital services by July 1.
In April, the UK had levied a two percent tax on revenue accrued from search engines, social media services and online marketplaces. It will only apply to companies that make over $650 million from digital activities and when more than $35 million of that revenue is derived from UK users.
There had been a growing push by public officials to regulate tech monopolies even before the virus hit.
Back in January, France became the first major economy to implement a tax on behemoths like Amazon and Facebook, imposing a 3 percent levy on the total annual revenues of the largest technology firms operating in the country.
Discussing how tech platforms have become an indispensable foundation of people’s everyday lives, Cedric O, the French junior minister for digital affairs, told the Guardian that “they have acquired a monopoly position today which gives them a footprint no other company has on the economy, so they need to see specific regulations applied.”
“A company which has 1.4 billion citizens on its social networks can’t be treated like just any other company, with the same rules,” he said.
While Big Tech have fiercely pushed back against such measures, the economic fallout of the pandemic requires unprecedented government spending. That reality is at odds with the devastating fiscal impact caused by lockdowns to combat the virus, which has seen the hemorrhaging of state coffers.
With governments scrambling to temper economic pain with massive debt-driven stimulus programs, key sources of revenue have taken a huge hit as the pandemic has crippled business and trade.
Meanwhile online business is booming: Big Tech has reaped the greatest windfall from the pandemic’s consequences, which has been to further accelerate trends toward digitisation. The so-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have proven to be more resilient than other industries ravaged by the pandemic.
With millions isolated at home, online retail giant Amazon has seen its market capitalisation balloon over $90 billion since mid-February, with founder and CEO Jeff Bezos pocketing $5 billion. Netflix has seen its shares up 30 percent, while Zoom has doubled in value.
If tech corporations have been immune to the impact of the virus and profited from it, as cash-strapped governments struggle for revenue streams, then taxing those who have avoided contributing to the public purse will be strongly considered in public policy toolkits.
This ultimately ties into the question of tax avoidance.
Amid the crisis, tech giants have sought to showcase their corporate generosity through donations that amounted to $1.2 billion from eight companies to counter the pandemic. According to TaxWatch, if we put this generosity into context it amounts to 0.22 percent of the total amount of profits these companies accumulated in tax havens.
The imbalance between private profits and public resources has only deepened after the 2008 financial crisis and corporations routinely exploited cross-border regulations to minimise the taxes they pay.
From a public finance perspective, the OECD estimates the total cost of corporate tax avoidance at $240 billion and lost revenue from Silicon Valley’s six largest firms at $100 billion over the past decade.
The stark asymmetry between Big Tech’s profits and a hollowed out public sector will be hard to overcome without coordinated, international tax reform.
As a post-pandemic world emerges, governments will likely find it necessary to update the rules and regulations to adapt to the digital economy, as Big Tech’s domination over data, information and communication presents a challenge to democracy and the power of the state.