Why services can’t realistically be tariffed and shouldn’t be 

In today’s digital economy, cross-border services are essential to how businesses operate, grow and compete. But while goods have long been subject to customs tariffs, applying tariffs to services would be both impractical and create significant legal, operational, and economic risks. 

This is because services are fundamentally different from goods, making them virtually unworkable to tax at borders. Unlike physical products that customs agents can see and inspect, services are intangible—think of things like consulting, software, or design work—that often cross borders digitally or through the movement of people, rather than in shipping containers.  

This creates multiple challenges: there is no clear moment when a service ‘enters’ a country, no global classification system comparable to the Harmonized System for goods, and no consistent method to assess what should be taxed.   

Even when governments try to tax cross-border services – such as digital services taxes (DSTs) or withholding regimes – they face legal challenges, high enforcement costs, and risks of international retaliation, as these approaches often violate established rules or conflict with trade and tax agreements. 

In contrast, some countries have opted for a more neutral approach by applying VAT to cross-border services—treating domestic and foreign providers equally.  

Beyond feasibility, there is also a strong economic argument to be made against tariffs on services. Services account for more than half of global trade on a value-added basis and are vital enablers of productivity, innovation, and inclusion. Imposing tariffs would raise costs, fragment global supply chains, and disproportionately harm MSMEs and developing economies that rely on affordable cross-border services to grow and compete, including legal advice, design, IT support and marketing.  

Tariffs on services would also increase compliance burdens and administrative costs for governments, requiring entirely new systems to monitor digital transactions, register providers, and audit contracts.  

Exporters would not be spared either: many countries are net exporters of services in areas like finance, education, and media. Tariff measures could trigger retaliation and reduce market access for these firms. 

In short: services can’t realistically be tariffed – and they shouldn’t be. Instead, policymakers should:  

• Reaffirm multilateral norms by supporting the continuation of the WTO E-Commerce Moratorium and rejecting tariffs on services.  
• Avoid unilateral tariff-like measures — such as DSTs or withholding regimes —that risk legal conflict, trade retaliation, and fragmentation. 
• Pursue multilateral cooperation through appropriate multilateral and regional bodies to develop common rules for the taxation of the digital economy.