The UK government is reviewing plans to reduce or potentially abolish its digital services tax in a move aimed at preventing retaliatory trade tariffs from the United States.
The proposal is under consideration ahead of a 27 March 2025 deadline set by US President Donald Trump for the imposition of “reciprocal” tariffs.
According to a report by Bloomberg, discussions within the British Treasury were prompted by recommendations from the Department for Business and Trade.
The tax, which currently imposes a 2 percent levy on revenues from British users for search engines, social media platforms and online marketplaces, has long been a point of contention with major US tech firms.
Companies such as Alphabet Inc, Meta Platforms Inc, and Amazon.com Inc have opposed the levy, which they view as discriminatory.
The UK’s digital services tax, introduced in April 2020, was designed to ensure multinational tech companies paid a fair share of tax in the jurisdictions where they operate.
However, the measure has drawn criticism from Washington and is now a key sticking point in trade discussions between the two allies.
President Trump, who has resumed his administration’s review of trade relationships, has signalled readiness to impose reciprocal tariffs on countries that use policies seen as barriers to US trade.
Sources familiar with the matter told Bloomberg that no company-specific exemptions are being considered in the potential overhaul of the tax.
Instead, the government is evaluating broader policy changes to de-escalate tensions with the United States and safeguard British exports from possible trade penalties.
The discussions gained momentum after Prime Minister Keir Starmer and President Trump agreed last month to explore a “new economic deal” between the two countries.
In a bid to ease tensions, UK Secretary of State for Business and Trade Jonathan Reynolds travelled to Washington last week.
There, he met with key US officials, including Secretary of Commerce Howard Lutnick, US Trade Representative Jamieson Greer, and Special Envoy Mark Burnett.
A person briefed on the talks said Reynolds is hoping to reach a compromise on the tech tax before the 27 March deadline.
The goal is to avoid triggering a new wave of tariffs that could harm bilateral trade and investor confidence.
While the tax has generated revenue for the UK Treasury, its removal could help smooth broader trade relations with the US at a time when both countries are pursuing closer economic alignment.
It remains unclear whether any reduction or repeal of the tax would be temporary or part of a permanent shift in digital taxation policy.
Observers note that any such decision could have implications for ongoing international efforts, led by the Organisation for Economic Co-operation and Development (OECD), to establish a global framework for digital taxation.
The UK has previously stated it would withdraw its digital services tax once a multilateral agreement is in place, but pressure from Washington may accelerate that timeline.
Officials in London have yet to make a formal announcement on the issue, but a decision is expected before Wednesday next week.
If the UK proceeds with scrapping or scaling back the tax, it may face criticism domestically for yielding to US pressure.
However, proponents argue that securing a broader trade deal and avoiding tariff escalation is in the national interest.
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