What is GAFA Tax?

Techsense Team I 11:55 am, 5th January

The world of technology is an oligopoly today, controlled by technology companies like Google, Apple, Facebook and Amazon. Together, these Big 4 are called “GAFA”. While this acronym is more common in the EU, it is catching on around the world.

Too big to handle

For long, there have been debates about how tech oligopoly is extremely restrictive for the growth of new technology businesses, their CIOs and IT managers. One of the main reasons for this is the incredible amount of control that GAFA has over the world’s most sensitive and personal information. Over 4.39 billion people use Google, 28.3 million use Apple, 2.85 billion use Facebook and 197 million people use Amazon each month!

GAFA’s access to people and information gives them a distinctive advantage over other firms. Over the years, there has been an increase in the number of unfair trade practices claims against GAFA. This includes excessive customer surveillance, unfair SEO practices, exclusivity agreements, extremely high developer fees etc.

So discriminatory have these practices become, that these “Big Tech” companies have become too big to sustain. In fact, there have been many litigations against GAFA companies in the past, in addition to ongoing legal issues, on grounds of antitrust violations.

Despite these litigations, GAFA has continued to be the most profitable business block in the world today.

France introduces GAFA Tax

GAFA – by its nature of being technology specialists and online service providers – is unique. For example, every digital interaction GAFA has with a customer can be collected, analyzed and used to create more targeted and compelling products, services and marketing campaigns. The sheer customer volume GAFA has, gives it access to a huge repository of information. This information is obtained relatively inexpensively and is used to create value for customers and profits for the companies themselves.

While smaller IT companies and brick-and-mortar businesses do get access to customer metrics, this is significantly lesser than GAFA’s. Additionally, these companies do not often have those specialized algorithms that help GAFA make sense of big data.

In an attempt to equalize the playing field, France in a landmark move, has decided to apply the GAFA Tax.

The GAFA Tax is a special tax that applies only to Google, Apple, Facebook and Amazon (GAFA). Here, France taxes 3% of revenues from all digital activities they conduct. The objective is to stop taxing GAFA using laws that are suitable for offline and small online companies. It is designed to tax the four companies in a way that is more suitable to their unique technological competencies.

The GAFA Tax is expected to treat the services provided by these companies as a “commodity” and subject them to more stringent taxation laws.

Not just France

Spain, Great Britain, Singapore and India are other nations who are currently formulating their own versions of the GAFA tax. The tax schemes they intend to put into practice is expected to help the countries strengthen their economy. It is also expected to enforce stricter controls over how GAFA uses customer data to create its products and services.

How might GAFA tax affect IT companies?

The GAFA tax is an added expense for the Big 4 companies. Already Google has announced a 2% increase in advertising fees to recoup the money they will lose to GAFA tax. This means IT managers, CIOs and IT company marketing teams will have to pay more than usual to Google, to use its advertising and analytics platforms.

Other GAFA members may not be far behind in thrusting the cost of the tax onto customers. For now, although the GAFA tax does have many benefits, it also poses numerous challenges for smaller companies and customers too. Only time will tell how effective the tax will really be.

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