The UK government is to introduce a tax on digital tech giants such as Amazon and Google that would effectively tax UK digital ad sales.

Speaking as part of the 2018 Budget, Chancellor Philip Hammond said tech giants that are profitable and have at least £500m in global revenue would be taxed 2% on the money they make from UK users. It is expected to generate more than £400m a year and will come into effect in April 2020.

Hammond added that the tax would be applied to “specific digital business models where their revenues are linked with the participation of UK users” and has said it would not impact startups. He has also said it could be canned if a consensus can be reached globally on how to better tax the digital giants.

Exactly what it would look like is up for consultation, but it appears to effectively be a tax on digital ad sales as Hammond ruled out taxing goods sold.

While the move has been welcomed by some, the ad industry has raised concerns that it could have a negative impact on the wider market.

“The announcement of the new Digital Services Tax on tech companies’ global digital turnover poses a significant challenge to the UK digital advertising market at a time when it is already facing an uncertain economic and regulatory climate. It might create a disincentive for competitors to set up and grow in the UK and may also impact on mid-market players who drive competition and provide choice,” says IAB UK CEO Jon Mew.

“The commitment of an extra £500m for Brexit preparations is good news but above all we need clarity as there are still a lot of unanswered questions around talent and data flows. We sincerely hope the Government is indeed committed to ‘leading the world in innovation-friendly regulation that supports the growth of the tech sector”.

Meanwhile, Stephen Woodford, chief executive of the Advertising Association, says the tax will need to ensure in its detail that Britain remains attractive to international tech investment, especially at a time of great change for the UK’s relationship with the EU and the wider world.

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