With increased public spending during the COVID-19 pandemic, cash-strapped governments around the world are seeking ways to increase their tax revenues, such as implementing taxes on online services or finding ways to fairly tax the biggest corporations doing business in their respective jurisdictions.
By far, at least 23 countries across the Europe, Asia, Oceania, and Africa have sought to implement a digital service tax (DST). Their main argument is that prevailing international taxation rules apply to an outdated model of economy.
Along with these countries, China also faces tough decisions around the taxation of tech companies. However, for China, taxing the digital economy could present a much different picture than the rest of the world. Despite being the world’s second largest digital economy, China is semi-isolated from the global digital world by a firewall. In fact, the country is more inclined to tax its booming domestic tech-conglomerates.
Why are countries starting to tax their digital economy?
According to the World Bank, the world’s digital economy is now equivalent to 15.5 percent of global GDP, growing two and a half times faster than the global GDP over the past 15 years. The rapid expansion of digital economies has sparked debates over whether the current tax rules are still appropriate in the modern global economy.
Large technology multinational corporations (MNCs) have made huge profits by providing digital services across the world. Under existing international tax treaties, they do not have to pay corporate income tax in a given country if they have not marked their physical presence there.
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