Finance minister Philip Hammond announced the new tax, which comes into force in 2020, as part of the 2018 budget on Monday.
“It is only right that these global giants, which are profitable in the UK, pay their fair share in supporting our public services,” Hammond said when announcing the new 2% tax, without naming any specific businesses.
The tax will target “search engines, social media platforms and online marketplaces, reflecting the value they derive from UK users,” according to the official budget document. It will only apply to companies with revenues of over £500m that are profitable in the UK.
“The threshold mean this tax is aimed squarely at the likes of Facebook, Alphabet, Amazon and maybe a couple others,” said Neil Wilson, the chief market analyst at Markets.com.
The new tax is expected to raise an additional £400m ($512m) a year, he said. Hammond emphasised that it is not a digital sales tax and will not punish Britain’s tech startups.
Tech giants such as Facebook and Google have been criticised for their tax arrangements in the UK.
Andy Soloman, the CEO of online customer service business Yomdel, said: “It will no doubt come as a kick below the belt for Bezos and Zuckerberg who have had it too good for too long at the expense of the smaller British retailer.”
Hammond in fact made an oblique reference to Facebook in his speech, saying he is “already looking forward to his call from the former leader of the Liberal Democrats.” Facebook recently hired Nick Clegg, the former leader of the LibDems, as its head of global affairs and communications.
Kevin Phillips, an international tax partner at law firm Moore Stephens, told Yahoo Finance UK: “The chancellor’s confirmation of the introduction of a UK Digital Services Tax is groundbreaking and will particularly hit the large US tech giants.
“They can be expected to be footing most of the estimated £400m per annum tax this will raise.”
However, Ted Keen, a managing director at restructuring specialist Duff & Phelps, said the tax is unlikely to make much difference to the companies affected.
Keen said in a statement: “The goal may be to target tech giants by imposing a sales tax on popular services, but in reality the consumers of that service will bear the brunt of the tax.
“In my view, the digital revenue tax exploits the public by framing the tax in an appealing way to voters as an attack on the huge corporations.”
Other experts also warned that the new tax could damage the UK tech sector by putting firms off investment in Britain.
Miles Dean, managing partner of Milestone International Tax, said: “At a time when the UK must pull out all the stops to attract inward investment with Brexit looming on the horizon, it beggars belief that a Conservative chancellor should contemplate levying a brand new tax on companies that have already invested heavily in the UK, employ thousands of people and whose total tax contribution is very often overlooked.”
Emanuele Angelidis, the CEO of IoT investor Breed Reply, said: “The government needs to tread very carefully, particularly as the UK’s exit from the EU is upcoming.
“Chancellor Philip Hammond’s digital services tax may be aimed at large companies, but such a unilateral move could easily negatively impact London’s reputation as one of Europe’s top destinations for small and medium-sized technology businesses. The government needs to set the right tone.”