Should the government introduce an online sales tax?

Evoked online sales tax has split the retail industry

Government consultation on whether the introduction of an online sales tax could help level the playing field between online and brick-and-mortar retailers ended at the end of last week.

It turned out to be a divisive topic that divided many big players in retail. Retail Gazette examines the pros and cons.

The case of online sales tax:

One thing retailers are united on is that the corporate pricing system needs to be overhauled.

Just this week, property consultancy Altus Group revealed that high street retailers pay 755% more in business rates than their online competitors.

For every £100 earned by large retailers, £2.91 is owed to local councils in business rates, compared to just 34p from online-only retailers.

The burden of professional tariffs leads to store closures. According to the British Retail Consortium Retail, tariffs and recovery: How corporate tariff reform can maximize retail’s role in the race to the top report, published last September, 83% of merchants say it is “likely”, “very likely” or “certain” that they will close stores if business prices are not reduced.

Sainsbury’s chief financial officer Kevin O’Byrne told PA last week: ‘High bargain rates in shops are destroying high streets across the country. We urgently need a fundamental reform of corporate tariffs.

“We urge the government to introduce an online sales tax that funds a reduction in commercial tariffs for retailers of all sizes and levels the playing field between physical and online retailers.”

A Waterstones spokesman agreed an online sales tax could help the high street.

They told Retail Gazette: “Shifting the tax burden from stores to online stores will save many stores from closing. The impact on each retailer will, of course, depend on the level of online sales tax.

Empty shop
“The transfer of the tax burden from stores to online sites will prevent many stores from closing.

Waterstones acknowledges that its substantial online operation means it is likely to pay the same tax or more in absolute terms, but says independent retailers will benefit.

“However, more stores will remain open to benefit local employment and the social fabric of communities, especially in the most deprived areas of the country.

“Professional rates are a perverse distortion that is long overdue to be corrected by successive chancellors and the introduction of an online sales tax is a logical and simple way to achieve this,” the spokesperson adds.

Waterstones is not alone. A survey by property specialist Colliers found that almost 90% of retailers support an online sales tax provided it eases the burden of commercial tariffs.

Meanwhile, retail giants such as Tesco, Sainsbury’s, The Co-op, Morrisons and Kingfisher have formed the Retail Jobs Alliance, a coalition to demand a government-funded permanent corporate rate cut from the government. introduction of a new online tax.

The Retail Jobs Alliance insists that a reduction in business rates would help retailers invest in stores and jobs, and keep prices low for customers as the cost of living soars, and a tax selling online would be acceptable under this tariff reform.

He says: “A significant reduction in the Shops Tax would make a big difference in the ability of retailers to invest more in shops and stores that we know customers value, as well as create jobs.

“This would make it easier for everyone in the retail industry to mitigate inflationary pressures, keep existing stores open and open new ones.”

The case against an online sales tax:

There are many dissenting voices in the online tax debate, and not just pureplayers.

A spokesperson for the John Lewis Partnership told Retail Gazette: “While we support reform of business rates, we do not believe the solution should be an online sales tax, which is likely to increase the level overall taxation of an already heavily taxed retail sector.”

It’s a sentiment shared by Marks & Spencer chief executive Steve Rowe.

“The simple fact is you can’t tax people in stores. You have to invest and adapt,” he wrote in The Sunday Mail.

Rowe goes on to liken an online tax to “a tax on our future.”

“As the future depends as much on platforms as it does on retailers, it is important that the UK has its share of winning platforms that can compete globally.

“Disadvantaging UK-based platforms will do nothing but cede the market to US and Chinese players and set back one of the few innovative and growing segments of the UK economy,” he said.

M&S online
A tax on online sales would hamper UK e-commerce business globally, says M&S boss Steve Rowe

As well as hurting UK online gamers’ prospects on the international stage, Rowe also believes the tax won’t give shops a boost.

“Introducing a new tax will simply mean that retailers will cut their fabric accordingly, starting with the least profitable parts of their business.

“In the case of multi-channel retailers, unfortunately it will most often be high-street stores, especially in city centers which already need investment and jobs,” he says.

Finally, he argues that ultimately the tax on online sales will mean that “stripped consumers will bear an additional tax on even essential items such as prescriptions, baby items and basic foods”, which is being introduced now, as the cost of living rises, would be “morally bankrupt”.

Currys chief executive Alex Baldock agrees the online tax will inevitably put additional pressure on consumers. He also believes it will hamper job creation in the retail sector.

“Now is not the time to raise taxes on retail, which would increase the burden on an already overtaxed industry that accounts for 5% of the economy but bears 10% of all taxes on businesses and on which 3 million jobs depend,” he said.

Meanwhile, Notonthehighstreet chief executive Claire Davenport warns the tax could hit small retailers who have turned to e-commerce during the pandemic and those who have started e-commerce businesses after losing their jobs during crisis.

She told PA Wires: ‘A lot of small businesses have spent the last year trying to get online and build their business – people who weren’t running a business before or had to pivot because they needed to go online.

“You don’t want to embarrass people who do this. It is not fair to penalize small businesses for trying to follow a trend that is happening in the market. »

But, if an online sales tax isn’t the answer to alleviating the financial pressure on stores, what is?

For Rowe, it boils down to three “quick wins,” which he thinks the Treasury could easily implement.

“Rebase the multiplier for ALL taxpayers to 35p from the current unsustainable level of 51p.

“End the downward transition so that reductions in property value are immediately reflected in rates. Maintain transitional relief upwards to help businesses cope with larger bills and fund them centrally – easy to do when tax uptake is guaranteed to be at the same level each year.

“This will ensure that ‘free’ multinationals – many of which are tech companies – pay their fair share, and that merchants and innkeepers can continue to serve their communities.”

The question of an online sales tax is clearly controversial. What side of the fence are you sitting on? Let us know in the comments below.

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