Digital tax Photograph:( AFP )
The fear is it may spark another trade war with the US this time targetting its allies - the EU, UK and France
The global economy is hung over badly with the US-China trade war, the pandemic and now the US may risk sparking a new trade war.
The US is going to investigate some of its closest allies from the European Union to India for digital tax. The US says American tech companies are being intentionally targetted if found guilty countries may face the wrath of US tariffs.
Coronavirus has pushed the world online and where there are people, there's business. Right now, more than 1.8 billion people purchase goods online. Global online sales are worth 2.5 trillion dollars per year with COVID-19, it could rise to over $4four trillion by next year. Digital giants now pocket the cash this huge cash.
However, now governments want a share of the pie. Many countries plan to impose a digital tax and America is protesting. The US wants to investigate countries which plan to introduce digital taxes. It says this is an instrument to target American tech giants.
But the debate is still on, although the real impact is likely to be felt by consumers and small traders if taxes are imposed on digital transactions, companies will surely look to transfer the burden to their customers be it online shoppers, online advertisers, online traders - many of whom run medium and small scale companies. Ultimately, they will have to indirectly pay the digital levies.
The US argues many of the American tech companies are already compliant with the respective country's tax regime. So, there's no need for an additional tax. The US is targeting some of the world's most valuable online markets, for American tech companies that's where the impact of taxes will be felt the most.
The list of countries includes India, these countries say American tech giants evade taxes by basing themselves in low-tax countries. Their global supply chains put the local online platforms at a disadvantage. To be fair it is not unique to online companies. Every other business ranging from power generators to shoemakers uses such ploys to gain a foothold in newer markets and to save taxes.
America says it will investigate digital taxes to protect its companies. It's not aggression, just self interest but what about the self interest of other countries? How can $4 trillion worth of transactions be left untaxed?
No country with a large market and multiplying online sales will give up the chance. So far, the US has said the investigation is going to be consultative meaning countries will get a chance to defend their digital tax policy.
However, the fear is it may spark another trade war with the US this time targetting its allies - the EU, UK, France which has postponed the collection of digital tax to 2021. Over 140 countries have come together to try and find a solution to the problem of digital tax but can they avert a digital trade war?