In recent weeks and months, many countries including the UK, Germany and France have all brought up the idea of a digital services tax, even going so far as to request that the US look at implementing a similar system themselves. Here is a rundown of what the tax is, why it’s being introduced, and what it could mean for your portfolio.
What Is A Digital Services Tax?
In essence, a digital services tax is exactly what it says on the tin. It would be an increase in taxes paid by companies such as Facebook, Amazon and Google, who have repeatedly found ways around a significant tax burden.
For the most part, this is done with accounting trickery, and companies filing financial reports in tax havens.
Why Is It Being Suggested Now?
One of the reasons stated by the countries suggesting the tax is that the pandemic has shifted a significant proportion of the economy online, and this is true.
As the high street has suffered, online stores and other digital companies have thrived. Amazon, for example, saw a significant proportion of its competition disappear overnight.
As such a significant proportion of the economy moved online, governments can’t afford to miss out on the tax revenue on offer, especially because the rest of the economy has seen a significant slump.
If governments around the world want to continue operating at the level they are, then they will need to find a way of increasing tax revenue. The growth of the sector, combined with the fact that companies were already not paying “a fair share” means that they have inevitably become a target.
What Does This Mean For My Portfolio?
In the short term, if you’re invested in any internet-based companies then it could be a good idea to gradually start divesting from these areas. Assuming the tax goes through, you might see the profits of these companies falling significantly and investor confidence dropping.
In the long run, investing in sectors that might benefit from this move, such as typical retail, could be a strong strategic move as investors look for the more profitable ventures.