G-20 update: Urgent push for digital taxes faces hurdles

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Updated: June 8, 2019 9:35:25 AM

The G-20 finance group has gathered annually since 1999, with Japan taking presidency for the June 8-9 gathering.

G 20 india, g20 agenda, Digital Taxes china, (REUTERS/Wolfgang Rattay)

The challenges of raising tax from the digital economy was the focus of a session with finance ministers from China, France, Japan, Indonesia, Britain and the U.S.

France’s finance minister Bruno Le Maire said there has to be an international solution and that the world now has to grapple with how to measure digital activities and the sale, exchange and use of data.

It’s one of many questions on the minds of finance and central banking chiefs from the Group of 20 meet this weekend in Fukuoka, Japan, in the midst of a widening trade war between the world’s two biggest economies that’s leaving policy makers struggling to shore up growth

Le Maire said G-7 countries will seek a compromise on digital taxation at their next meeting in July in France, which could form the basis of a system for other G-20 countries. Once there is a new system, France will scrap its own digital tax, which is based on turnover, taxing the exchange of data and advertising.

But reaching consensus won’t be easy.

“These are complicated issues in a changing environment and something I am sympathetic to,” said U.S. Treasury Secretary Steven Mnuchin. He agreed on the urgency of addressing the matter but not all the ideas being suggested by his counterparts.

Indonesian finance minister Sri Mulyani Indrawati warned that governments are struggling with how to measure businesses that aren’t based on an underlying physical business model.

“The growth of the digital economy has been exponential but we cannot capture this growth either in our GDP or our revenue,” she said. “The digital economy is creating a totally different economic model.”

UK Chancellor of the Exchequer Philip Hammond cautioned against revolutionary change, instead urging policy makers to consider “modifying, amending and changing our existing system and not tearing it up and building it from scratch.”

Earlier, the prospect of mouth watering new taxation revenues was dangled by OECD Secretary General Angel Gurria.

He argued that a push for transparency in the international banking system has already yielded a bonanza in new tax revenue as money crossing borders is declared in a way it previously wasn’t.

Governments could raise trillions more as further measures are pushed through.

Tax dodgers have “nowhere to hide” he told the audience of G-20 officials.

Here are some other takeaways of the meetings so far:

“Central banks are heroes,” Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development, told Bloomberg Television in an interview. “The question is how much armory do they still have, how many bullets, particularly silver bullets?”

There’ll be plenty of one-on-one meetings over the weekend too, with the most anticipated being one planned between Mnuchin and China’s central bank chief Yi Gang. Whether the two countries can get beyond their current impasse will be keenly watched.

The G-20 finance group has gathered annually since 1999, with Japan taking presidency for the June 8-9 gathering.

The main players will hail from Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, and the European Union. Others will also attend, including officials from constituencies such as Singapore, Switzerland, as well as from multilateral organizations like the International Monetary Fund.

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