Source · Select Committees · Public Accounts Committee
Recommendation 2
2
Accepted
HMRC implemented the Digital Services Tax with little cost, and the experience could provide valuable...
Recommendation
HMRC implemented the Digital Services Tax with little cost, and the experience could provide valuable lessons for other new taxes. HMRC implemented the tax on schedule for only £6.3 million, less than budgeted, though there will be ongoing compliance costs. The small population of payers (18 in 2020–21) means that HMRC has been able to build a relationship with each taxpaying business. It is also learning more about the population of digital businesses generally. HM Treasury says that the tax is delivering fairer outcomes, but some companies face potential double- taxation for the same transactions – first by Digital Services Tax taxing the revenue, then Corporation Tax taxing the profit. Businesses who operate a model of a high volume of transactions with lower profit margins also bear a heavier burden. HMRC has provision for businesses to be exempted from payment if they can demonstrate that the activities in question are not profitable. Recommendation 2: HM Treasury and HMRC should consider what lessons can be learned from the Digital Services Tax’s introduction in terms of implementing tax systems efficiently and assessing the proportionality of its impact on taxpayers.
Government Response Summary
The government agrees and says HMRC carries out an evaluation on the implementation of all measures that require new or updated systems and processes, and that they have since implemented other taxes learning lessons from the design and implementation of DST.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented 2.2 HMRC carries out an evaluation on the implementation of all measures that require new or updated systems and processes. This was completed for DST following the implementation of the new return system with lessons learned being considered and applied across HMRC’s portfolio of tax policy changes. This includes looking for opportunities to re-use existing solutions and applying proportionate IT changes to drive cost efficiency. 2.3 The government has always said that the optimal solution would be a multilateral solution on reallocation of taxing rights. However, pending a multilateral solution, the government decided to implement a pragmatic interim solution. In line with guidance agreed within the OECD, the DST is focused on the businesses for which the policy concern is considered most relevant and for which administrative burdens are considered most manageable. While the DST is an interim solution, the government keeps tax policy, including the impact of the DST, under constant review. 2.4 The government has since implemented other taxes learning lessons from the design and implementation of DST. Other measures that have used thresholds to target the tax in line with both policy and administrative considerations are the Residential Property Developer Tax and the Electricity Generator Levy.