Following the release of a report on digital services tax, the Chartered Institute of Taxation (CIOT) believes there's a risk of it becoming permanent.

The report, put together by the Public Accounts Committee (PAC), shows the Government took 30% more than expected in the first year of the tax - a total of £358 million.

Initially, the digital services tax was designed to be a "stopgap" until a permanent solution was introduced, but the CIOT raises concerns that the once temporary measure may now be here to stay.

Not only does the CIOT believe that the digital services tax could be unbalanced, but also that it may cause complications with foreign trade.

John Cullinane, director of public policy at the CIOT, said:

"A revenue tax such as this is a blunt instrument that cannot accurately represent the tax on the profits generated in the UK. It will inevitably over-tax some companies and under-tax others.

"It is also highly controversial internationally, especially with the United States, home of a number - perhaps a majority - of the companies affected.

"But there is little sign of a breakthrough in the OECD talks on the allocation of taxation rights that all major trading partners will be able to sign up to, which we are hoping will produce the agreement that will enable the UK digital services tax - and its equivalents elsewhere - to be scrapped."

First introduced on 1 April 2020, the digital services tax added 2% in charges on top of the revenues from search engines, social media services and online marketplaces that make money from UK users.

Under the Government's policy, any business that falls within the scope of the tax has an allowance of £25m before incurring the charge.

MPs warn of businesses avoiding the tax

Elsewhere in the PAC report, members have identified ways in which companies could avoid and evade the tax, prompting MPs to demand a contingency to stop this.

While MPs recognise that the revenue was higher than expected, they're concerned that the successful implementation may not last. HMRC is still identifying additional potential businesses, which has created continued uncertainty about how much tax should have been paid in the first year.

MPs have asked HMRC to report any final revenues for the 2020/21 tax year to the PAC once all of the assessments have been completed.

Sarah Olney MP, PAC lead on the inquiry, said:

"We were very pleased to see HMRC finally getting to grips with the realities of taxing multinational corporations after years of PAC recommendations on this.

"But HMRC needs to up its game on compliance - especially across jurisdictions - about how the tax will actually operate, over what will likely be years more before a proper international tax is fully operational."

Previously, HMRC forecast that the tax would bring in an extra £55m by the 2024/25 tax year, but now HMRC and the Office for Budget Responsibility forecast that cumulative revenue from the tax will exceed £3bn.

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