Czech coalition agrees on lower 5% digital tax aimed at global online giants

Photo: Gerd Altmann, Pixabay / CC0

The Czech government has agreed to introduce a 5 percent digital tax on the local revenues of internet giants such as Amazon, Google and Facebook. The aim is twofold: to boost state coffers by billions of crowns and level the playing field for domestic rivals.

Photo: Gerd Altmann,  Pixabay / CC0
Photo: Trending Topics 2019,  Flickr,  CC BY 2.0

Following on the example of other European Union countries such as France, the coalition government agreed on Wednesday that firms with a global revenue of roughly 20 billion crowns annually, 100 million crowns turnover on the domestic market, and more than 200,000 user accounts be subject to a 5 percent digital tax.

The move could lead to retaliation from the United States – where the biggest such tech firms are based. Earlier this month, the U.S. Trade Representative’s office said it was investigating digital services taxes being adopted or considered by the Czech Republic, Britain, Italy and Brazil, among others.

The government says that the proposed tax, initially set at 7 percent, will be imposed on the local revenues of targeted advertising, digital marketplace provision and user data sales, until countries of the Organisation for Economic Cooperation and Development (OECD) set a uniform one. The coalition plans to postpone the effectiveness until the start of 2021.

Jiří Nohejl,  photo: Czech Radio

Economist Jiří Nohejl of the Liberal Institute is among those who worry such an interim step could do more harm than good, even while acknowledging ever-widening gap in revenue between local traditional media and global digital platforms could stem from the abuse of a dominant market position.

“For starters, I think such a thing needs to be agreed in the wider international community, including the OECD. Imposing a digital tax on a specific sector, however, is not a good step. Various negative phenomena can result from this…When some players fail to succeed in the market, they seek solutions through a political process.”

Speaking on a recent debate programme on Czech Radio, Nohejl argued that since a digital tax can is imposed on revenue rather than on profit, firms can simply pass on the tax burden to users. That could lead to higher advertising prices on Facebook, for example, which smaller companies could not readily afford.

Václav Mach,  photo: Czech Radio

For his part, Václav Mach, head of the Czech Publishers’ Association, said in a digital environment, it is easy to transfer profit from one market to another. And without uniform tax rates across the EU or OECD, states such as Ireland will look to benefit by offering big tech companies investment incentives.

“The digital landscape is rapidly changing, and G7 countries must decide what legislation for the digital environment is missing and how to set it ... In the meantime, ‘GAFA’ – Google, Amazon, Facebook and Apple – are emblematic of a tax optimization phenomenon that has existed here for a long time.”

Washington has repeatedly said it considers the digital tax to be discriminatory against US firms and could result in retaliatory measures. The Czech Chamber of Commerce said Wednesday losses from tit-for-tat action could target exporters and ultimately lead to a much larger tax revenue shortfall.