The World Trade Organization (WTO) is poised to make a pivotal decision that could reshape the digital media landscape worldwide.
Since its establishment in 1998, the organization has upheld a moratorium on duties for e-commerce products, allowing online platforms like subscription-based video service Netflix, music streaming service Spotify, and video game developers to operate internationally without facing additional taxes.
However, as the WTO convenes its latest biannual meeting in Abu Dhabi, ABC News reports that pressure is mounting to reconsider this long-standing policy.
WTO to Decide on Digital Media Tax
The main issue of the debate is whether to keep the duty freeze on e-commerce in place or let it expire, which could mean that digital media will have to pay taxes.
According to a WTO report published in December, the value of "digitally delivered services" exports increased by more than 8% between 2005 and 2022, outpacing goods exports (5.6%) and other services exports (4.2%). These digital services accounted for 54% of global services exports last year.
WTO Director-General Ngozi Okonjo-Iweala emphasized the significance of the decision, noting its implications for millions of businesses, especially small- and medium-sized enterprises. "We hope that ministers would be able to make the appropriate decision," Okonjo-Iweala told the press.
At the moment, there are four proposals on the table. Two want to extend the suspension of duties, while the other two, led by South Africa and India, want it to end.
Under WTO rules, major decisions such as this require consensus among its 164 member countries, making the outcome uncertain. It is worth noting that some countries, particularly the United States, have historically voted against digital services taxes.
Discussions on Taxing Digital Media
Proponents of the moratorium extension argue that it benefits consumers by keeping costs low and fostering the global expansion of digital services. However, critics contend that it deprives developing countries of vital tax revenue. Despite differing estimates on the potential impact, a collapse of the moratorium could mark a significant shift in international trade dynamics.
Industry representatives, including the Motion Picture Association and the US Chamber of Commerce, are lobbying vigorously for the extension of the moratorium. They warn that its expiration could lead to the imposition of new customs duties, posing a threat to various sectors of the economy and millions of workers globally.
The debate over taxing digital media extends beyond the purview of the WTO. Globally, jurisdictions have been grappling with the issue of digital services taxation for years. Australia, Europe, and Asian countries like India, Singapore, and Malaysia have already implemented digital services taxes as early as 2020, each with its own set of rules and rates.
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