Leading advertising bodies have warned that a planned UK tax on tech giants could have negative consequences.

The “digital services tax”, announced in Britain’s budget this week, is aimed at US giants Amazon, Facebook, eBay and Google – which have stoked general public anger over how little tax they pay in the UK.

The proposed 2% tax on UK-generated revenue will hit search engines, social media platforms and online marketplaces. It would raise around £400m from 2022-23, according to government figures. The tax would only apply to profitable companies with a minimum of £500m in global revenue.

However, ad organisations have warned that the tax could threaten the UK’s position as “a leader in digital innovation” and is a challenge to the digital advertising market, already under pressure from economic uncertainty and increasing calls for regulatory tightening.

The Interactive Advertising Bureau said the digital tax could be a “disincentive for competitors to set up and grow in the UK”. And the Incorporated Society of British Advertisers (ISBA) told Campaign it was “vital that the UK does not lose its position as a leader in digital innovation”.

Phil Smith, director-general of ISBA, said: “The strength of our digital economy is based on the UK being a welcoming environment for digital businesses of all sizes."

ISBA recognises the need to update international tax treaties and domestic tax legislation to reflect the needs of modern business, but Smith said “it would be inappropriate to seek to treat digital businesses differently from businesses in other sectors” and urged the government “to proceed on a multilateral basis, in an evidence-led fashion”.

The new tax, planned from 2020, will only be introduced if efforts by the OECD, G20 and EU fail to reach agreement on how such a tax could be set across national borders. The UK tax would last only until there is an internationally recognised agreement for a digital services tax.

Elsewhere, South Korea, India and at least seven other countries in Asia Pacific are looking at similar taxes for digital giants, the Wall Street Journal reported. Mexico, Chile, and other Latin American countries are doing the same. Spain also has plans to bring in a 3% digital tax next year for companies generating at least €750 million globally, €3 million of which must be raised in Spain.

Sourced from Campaign, Wall Street Journal; additional content by WARC staff