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Yes Media Types, This Is How Taxation Works

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It is possible to be exceedingly stupid about taxation and here is our example of that:

The government has imposed a tax upon ad sales by Google. Therefore the tax appears upon ad sales by Google. It is the government collecting that money and therefore the government who should be castigated for raising those costs. Obviously.

For this is how taxation works. There are only us people around here. The dolphins and the dogs tend not to pay much tax. Therefore every tax leads to the wallet of some live human being getting lighter. Whose is determined by tax incidence.

Consumption taxes are paid by consumers:

Google is to pass the cost of the UK’s digital services tax on to advertisers, adding more than £120m to marketers’ costs annually, as the government’s attempt to get tech giants to pay more to the exchequer is billed to their customers.

Google has told its tens of thousands of clients that from November it will charge an additional fee for ads served on Google and YouTube. The move will increase advertisers’ costs in line with the amount the tech giant is set to pay in new digital services taxes as they come into force: 2% in the UK, and 5% in Austria and Turkey.

Quite so. A sales tax is, in the jargon, a consumption tax. Therefore it is consumers – the consumers of advertising being the people who buy it – who pay the digital sales tax. No one should ever have expected otherwise and we around here have been saying this for some time now.

The shock about this might not be quite as stupid as that Tweeted claim but still, it betrays a significant lack of knowledge about the world.

We can go a little further in our study of tax incidence. It is possible that use of Google advertising – just to use an example of something carrying that DST – will decline as a result of the 2% tax. People will move to smaller companies which don’t have to pay it say. If people buy fewer Google ads then some part of the effect of that tax falls upon Google shareholders in lower profits. Upon the wages of Google workers as fewer of them are hired. But note – if Google is that monstrous monopoly that people say it is then they’ll not move because there is nowhere to move to. Thus the tax will still be carried by consumers. It’s only if we’re in a competitive market that the tax impacts Google. But the justification for the tax is that Google is a monstrous monopoly. Therefore it is consumers that will pay it.

Seriously, people really ought to grasp this. The digital sales tax is a tax upon consumers, not tech companies. So, why is it being imposed?

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11 COMMENTS

  1. James Hannam, author of What Everyone Needs to Know about Tax:
    “The First Golden Rule: Lots of small taxes together add up to make big tax bills.

    The Second Golden Rule: No matter what name is on the bill, all taxes are ultimately suffered by human beings.

    The Third Golden Rule: Taxes are kept as invisible as possible”.

  2. I bought some petrol earlier, and the bloody petrol station had added 20% to my bill!!!!! How dare they!!!! Tried to disguise it by calling it VAT. The basterds!!!!

  3. Hardly a day goes by without someone on the Left arguing for increased taxes on alcohol, tobacco, vaping, junk food, you name it. Not for the added tax revenue mind you, but because it’ll reduce consumption of these terrible substances. Hmm, so consumers must be paying these taxes for it to affect their behavior, don’t they? Well, yes in these cases but not when we add a tax to digital services.

  4. Yeah Esteban, but the soap dodgers soon start moaning when UK government hasn’t got the money to pay their welfare. Can’t have it both ways. Folks like Google, Facebook, Apple and Amazon were taking the piss with their EU tax dodging schemes like the double-Irish-Dutch-ham-and-cheese-sandwich or whatever. Something needed to be done and this was something, essentially a turnover tax equivalent to the amount of corporation tax they were dodging.

    Sure, in better times we would have sent the boys from Inland Revenue in to go over the books, but since Gordon Brown’s reforms to create HMRC they no longer have the ability. All the ex-inspectors in private practice just run rings around them for a couple of hundred quid an hour.

    This idiotic, but straight-forward consumption tax is the result. Enjoy!

    • Perhaps, but wouldn’t it be better to fix the extant problems with taxation rather than creating a whole new tax industry subset looking to find holes in the latest idiocy from politicians?

      • Sure, but the problem there was that the rule about Companies being resident in a country only where they operate, not just where they have distribution and logistics operations is included in most of the double-tax and trade treaties and they cannot be repealed unilaterally without causing severe consequences. Plus when you’re about to lose access to a huge market (the EU), you don’t want to be throwing a spanner in the works with all of your other treaties.

  5. ‘Seriously, people really ought to grasp this. ’

    Why? There is little else they grasp: just look at how they vote for the same selection parasites every time no matter their blatant lies, broken and unfulfilled promises, the ongoing panicdemic, everything Green, the bang-a-pan-clap-like-a-chimp NHS, it’s a long list.

  6. “ Seriously, people really ought to grasp this. The digital sales tax is a tax upon consumers, not tech companies. So, why is it being imposed?”

    It’s hard to get someone to grasp something when their whole political and economic world depends on the not grasping it, as someone almost said.

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