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UK 2% digital tax of Amazon backfires, small businesses with already-tight margins end up paying

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The Digital Services Tax (DST) became law in the UK in July. The law is a 2 percent tax on revenue on all online marketplaces, social media platforms, and search engines with revenues of more than £500 million. It was designed as a way to tax Big Tech and, predictably, it’s already backfiring.

Amazon is hitting back by transferring the cost to small businesses who use the platform and whose margins are already slim.

The tax is meant to make sure companies making huge profits in the UK contribute to the public. Unfortunately, it’s not Amazon or the other targets of the tax, such as Facebook and Google, that will end up paying the tax. The tax will be paid by smaller businesses who use Amazon’s services.

Amazon announced that it would transfer the additional cost to customers starting September. Amazon did the same in France when a similar law was passed for digital services companies with revenues exceeding €750 million.

In a note to sellers, Amazon said, “While the legislation was being passed, we continued our discussions with Government to encourage them to take an approach that would not impact our Selling Partners and absorbed the increase.”

“Now that the legislation has passed, we wanted to let you know we will be increasing Referral fees, Fulfilment by Amazon (FBA) fees, monthly FBA Storage fees and Multichannel Fulfilment (MCF) fees by 2% for items sold in the UK to reflect this additional cost.”

So far, more governments are adopting a digital service tax that is a percentage of revenue regardless of profitability.

Currently, there are talks about global digital services tax solutions led by the OECD (Organization for Economic Cooperation and Development). However, the talks have stalled after the US threatened to pull out, claiming that such a law would unfairly target global companies based in the US.

Amazon commented on the global digital services tax by saying, “Like many others, we have encouraged the government to pursue a global agreement on the taxation of the digital economy at OECD level rather than unilateral taxes, so that rules would be consistent across countries and clearer and fairer for businesses.

“As we’ve previously indicated, the way that the government has designed the Digital Services Tax will directly impact the businesses that use our services.”

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