Cash-strapped governments see revenue in US$26 trillion online industry amid pandemic

Six nations in Europe – Austria, France, Hungary, Italy, Turkey and the UK – have already announced plans for a digital services tax

Updating global tax rules could be worth as much as US$100 billion in government revenue, according to the OECD

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Netflix posted its strongest financial results in the March quarter, when the streaming video services giant added a record 15.8 million paid subscribers, as millions stayed at home to help curb the spread of the coronavirus. Photo: Agence France-Presse

Published: 5:00pm, 4 May 2020Updated: 5:00pm, 4 May 2020

When Indonesia looked for new ways to fund government spending on coronavirus relief last month, the world’s fourth most-populous nation homed in on a driver of the economy that was still healthy: the internet.

“We decided to tax digital companies with an electronic transaction tax because their sales have soared amid the Covid-19 outbreak,” Finance Minister Sri Mulyani Indrawati said at a press conference. Citing services like Zoom and Netflix, she said “their economic activities are huge”.

And who could blame her. Fiscal authorities staring at gaping budget shortfalls from Canberra to Copenhagen are looking for any form of commerce and consumption they can tax. Coveted well before the pandemic, digital revenue is becoming an even more likely target.

But it will not be that simple. Such efforts are likely to raise the hackles of US President Donald Trump because many of the most popular e-commerce services – from social networking to video streaming and online retailing – are American companies, and he wants those new taxes for his strapped treasury.

The popularity of Zoom Video Communications’ service has soared during a time of widespread lockdowns aimed at stemming the spread of the coronavirus pandemic. Photo: Bloomberg

While the pandemic decimates large swathes of traditional industries, stay-at-home policies have played into the strengths of companies including Facebook, Apple, Amazon.com, Netflix, Alphabet and Microsoft Corp. Collectively they generated about US$234 billion in revenue in the first quarter, up 14 per cent from a year earlier.

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