As 2020 came to a close, Chinese officials hinted at new data regulations on the horizon. Yao Qian, a Chinese securities official, stated that China should impose a digital data tax on some tech companies. Considering big tech’s prominent presence in the country, these taxes, if enacted, could have considerable impacts on the industry.
The international technology industry is inseparable from China. Several of the world’s largest tech companies are Chinese, and many others have bases of operation in the country. As such, any legislature in the nation regarding technology has significant global implications.
The Current State of Digital Services Taxes
China wouldn’t be the first country to establish a digital services tax (DST). In Europe, eight nations have implemented a DST, and six more have proposed or announced such legislation. Not all of these include a digital data tax, but some do.
France has one of the broadest DSTs, covering revenues from a range of digital services. This includes the transmission of user data for advertising purposes, which seems similar to what China might enact. The U.S., which has no such tax, has opposed these measures, threatening France with tariffs until France agreed to postpone collecting DSTs on U.S. companies.
The United States Trade Representative (USTR) has responded similarly to other nations with DSTs. Given this precedent, it’s possible that it will do the same if China goes through with its tax proposal.
The Financial Impact of Digital Data Taxes in China
Chinese officials have said little about what their DST would include, so the impact is still uncertain. They have, however, mentioned that these taxes would specifically target tech platforms that “hold a large amount of users’ data.” This legislation would likely collect payments from online platforms like Facebook and Google based upon how much user data they hold.
Considering that Google, Facebook, Amazon and Microsoft may store as much as 1,200 petabytes between them, these taxes would quickly become expensive. While none of these are Chinese companies, they all do business in China or with Chinese customers. As a result, Big Tech, which relies heavily on collecting user data, could see substantial losses.
Massive tech corporations aren’t the only ones that could face massive payments. Typically, governments impose DSTs on gross revenue, not net income. Consequently, even smaller, unprofitable tech companies may end up paying significant sums to the Chinese government.
Potential Changes in Data Governance
This new financial burden wouldn’t be the only impact of a digital data tax. The way companies gather and handle user data could shift as they adapt to these changes. For instance, some tech companies could store less data at a time, at least for customers in China, to lower the taxes they have to pay.
Officials have said that these proposed taxes come out of concern for consumers’ data rights. This has been a rising issue as data breaches increase, although these are more often than not due to human error, not the platforms themselves. Still, in response to these regulations, Big Tech could take a step back when it comes to holding user information.
Some companies may respond by stepping out of China. Doing so would help them avoid decreased profits from these taxes but would represent a considerable loss in other areas. There are more than 883 million internet users in China, constituting the world’s largest online community. That market is likely too substantial for companies to ignore, even with more taxes.
While this wouldn’t be the first digital data tax, it would set a new precedent. Officials have proposed treating user data as a natural resource, which would represent a legislative first. As data becomes more crucial to businesses, other nations may follow suit, leading to further regulation of the tech industry.
Big Tech Can Expect Heightened Regulation in the Future
Whether or not China will implement this digital data tax remains uncertain. Even if they don’t, tech companies will likely face increased regulations as time goes on. User data is reaching new heights in both its abundance and utility, and world governments won’t likely sit idly by.
These new regulations may make conducting business, especially internationally, more challenging for Big Tech. On the other hand, they could also protect users. For now, tech companies have to stay vigilant about developing changes and be ready to adapt.