Tech giants hire lobbyists, but why?

It’s normally true that the Treasury cannot see economic activity without desiring to tax it. Yet there are sensible ways to gain the revenue to run government and those not so very rational. Taxing a company upon turnover is one of those less rational ones. But that is what is being suggested.

Mel Stride, the financial secretary to the Treasury, said the tax system was not designed to cope with multinational digital businesses, and a revenue levy was the “potentially preferred option”.

β€œAt the moment [they] are generating very significant value in the UK, typically through having a digital platform with lots of users interacting with that platform,” he told the BBC.

“That is driving a lot of value, so you’re looking at social media platforms, online marketplaces, internet search engines, where at the moment the tax regime is not taxing those activities fairly.

“We want to move to a situation where we are taxing those activities fairly.”

This is blithering stupidity in fact. At the first level we should not be taxing companies at all. There’s only us humans here to carry the burden of taxation therefore we should only be taxing us humans. Companies are just collections of humans, there’s no there there to carry the incidence of taxation. Tax employees, shareholders, management, customers, if you desire, but not the corporate structure itself.

At the second level the statement here is that these damn foreigners are coming into our green and sceptered isle and creating lots of economic value. We must stop them by taxing them! Entirely drivel, convincing foreigners to make us richer is something we try to do, not something we aim to prevent.

But it’s at the technical level that this is truly absurd. It’s a transactions tax, Sir James Mirrlees having told us what the problem with these is. One point being that pesky Laffer Curve. Contrary to left wing belief this does exist, it’s a mathematical certainty. But the important point to note about it is that different taxes have different rates at which the peak is hit. For income tax somewhere in the 40 to 50% range for example, for a consumption tax like VAT maybe 20 to 25%. With a transactions tax it could be as low as 0.01%. For that’s the rate at which the EU itself said that a financial transactions tax would make us poorer. The loss of economic growth would lead to total tax revenues being lower even at such a paltry rate.

Even more than this, just what is a tech company that should be subject to such a tax regime? We here, The Continental Telegraph, we’re small if perfectly formed. We’re not a company yet but we’re at least arguably “tech.” We’re most certainly not profitable, not on Day 3. We should be paying a turnover tax, not one on value added, ie profits? No, obviously we shouldn’t, but then if that’s true what is the definition of a tech company which should? This will obviously become something subject to discretion – and that’s just not the way to run a tax system at all.

The Treasury should be told to go boil their heads. Taxing companies is a bad idea to begin with and taxing upon turnover is a stupid way of even doing that.

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14 COMMENTS

  1. Wouldn’t the incidence of a turnover tax be more-or-less entirely on the consumer if it wasn’t something that your average Joe could source through a cross-border transaction? So we aren’t taxing Johnny Foreigner who owns the company, but our own consumers, aren’t we?

  2. If you were to tax turnover companies would consolidate as much as possible to minimise the amount they subcontract, and hence invoice against. You’d end up like the old Japanese companies owning everything from the mine to the mill to the factory to the shop.

  3. The reason we tax a percentage of net profit is that the payer is enjoying economic success. Turnover’s attractiveness to legislators is not that there’s a reasonable basis but that it is a much larger number, so presumably the tax rate can be a lower number and thus seem less damaging. Unfortunately, this compels payments from companies not yet turning a profit, and in some cases inhibits them from ever doing so.

    One quibble, that a given method of taxation does not kill the host does not make it “sensible.” No method of seizing money from oil drillers to fund office-dwellers writing regulations requiring the eventual gasoline to be watered down with ethanol is sensible. Let us shoot higher than that our governance not be immediately suicidal.

  4. Twenty years ago I could book a CityCabs taxi with the telephone, therefore CityCabs were a telecommunications company. The Guardian uses electricity to run their printing presses, therefore the Guardian is an electricity company.

  5. “The Treasury has indicated this change will target only social media firms, online marketplaces, search engines and other companies which derive significant value from customer data, obtained through “free” services.”

    Ah-ha.

    VAT-able subscription charges anyone?

  6. Wouldn’t the incidence of a turnover tax be more-or-less entirely on the consumer if it wasn’t something that your average Joe could source through a cross-border transaction? So we aren’t taxing Johnny Foreigner who owns the company, but our own consumers, aren’t we?

  7. If you were to tax turnover companies would consolidate as much as possible to minimise the amount they subcontract, and hence invoice against. You’d end up like the old Japanese companies owning everything from the mine to the mill to the factory to the shop.

  8. The reason we tax a percentage of net profit is that the payer is enjoying economic success. Turnover’s attractiveness to legislators is not that there’s a reasonable basis but that it is a much larger number, so presumably the tax rate can be a lower number and thus seem less damaging. Unfortunately, this compels payments from companies not yet turning a profit, and in some cases inhibits them from ever doing so.

    One quibble, that a given method of taxation does not kill the host does not make it “sensible.” No method of seizing money from oil drillers to fund office-dwellers writing regulations requiring the eventual gasoline to be watered down with ethanol is sensible. Let us shoot higher than that our governance not be immediately suicidal.

  9. Twenty years ago I could book a CityCabs taxi with the telephone, therefore CityCabs were a telecommunications company. The Guardian uses electricity to run their printing presses, therefore the Guardian is an electricity company.

  10. “The Treasury has indicated this change will target only social media firms, online marketplaces, search engines and other companies which derive significant value from customer data, obtained through “free” services.”

    Ah-ha.

    VAT-able subscription charges anyone?