Why gulf states must not wait long to tax global tech

More countries are getting more convinced by the day about the necessity of imposing taxes on technology businesses, as they keep on acquiring a greater marketshare of ecommerce and marketing services. More so, as this comes with the flight of huge profits outside of these countries to the corporate headquarters of these tech behemoths.

These businesses do not contribute directly to supporting investments into the countries where they take their profits from. On the contrary, their activities lead to the destruction of vital sectors.

These damages are not limited to developing or emerging countries, such as India, but to developed countries or blocs, including the EU, Australia and Canada. This has prompted the countries and blocs to undertake tax reforms to limit the flight of wealth outside their territories.

This seems the only option they have because it is difficult to prevent tech companies from operating owing to their dominance of the internet.

After France, which imposed taxes on these companies, Britain was next. The UK Treasury Minister Rishi Sunak announced last week a budget clause that would lead to multinational tech companies having to pay larger tax bills.

In February, Australia took similar measures. It forced Facebook to pay fees for using Australian media content. In Germany, Google was also obliged to pay $1 billion over three years to German media outlets because it uses their content.

Pursuing the same approach, the Indian media demanded that Google pay 85 per cent of advertising revenues generated in the country to local publishers, who get nothing from Google using their content.

Bleeding local economies

This exposes most publishers to bankruptcy due to the significant decline in ad revenues, which are transferred by tech companies to wherever they want. This has deleterious effects on the local economy, leading to job losses, imbalance in payments and decline for major sectors, and thus affecting growth.

The worst aspect is that technology companies are increasingly using tax havens to avoid tax not only from the countries where they are operating in but also from their countries of origin. Despite their massive profits, those in charge of these companies are not satisfied and attempt to redouble their gains, by bypassing all financial and social responsibility norms.

They have to guarantee a minimum level of fairness of distribution and maintaining their obligations to the states and their citizens.

The tech companies’ blase manner grows in those countries lenient to them, such as the GCC states, which have not yet taken any measures against their illegal domination over ecommerce, digital ads and social media, which have cost the Gulf heavy tax revenue losses, and led to the bankruptcy of many companies operating in retail and media sectors.

Take them on

This is a challenge that must be faced to safeguard some of the most important components of local economies before they collapse completely and create conditions that threaten social stability.

Local tech companies are not able to compete with the multinationals due to the great disparity in their competitive capabilities, and the latter’s attempts to deliberately push them out of the market.

Such an increasingly risky situation must be addressed the same way done in the EU, Australia and India, because if it worsens, their economic structure of will be seriously damaged. Although this will not end tech’s dominance, controlling it will contribute to saving local businesses and limits the flight of profits abroad.

- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.