Pressure is mounting on the UK government to offer relief around business rates but an ecommerce sales tax to level the playing field “won’t solve anything”, according to Andy Mulcahy, strategy and insight director at the Interactive Media in Retail Group (IMRG).
An online sales tax has been pushed heavily by a number of organisations – including Tesco, Waterstones and commercial property owner Hammerson – have written a letter to Chancellor Rishi Sunak demanding a “level playing field” in the tax system.
The acquisition of Debenhams and Arcadia Group brands to ecommerce fashion giants Boohoo and Asos threw the debate back into the spotlight. Boohoo announced in January it had purchased the online business of Debenhams for £55m and Arcadia brands Dorothy Perkins, Wallis and Burton for £25.2m. Asos also announced its £330m acquisition of Topshop, Topman and Miss Selfridge last week.
The online retail groups paid £48.1m in tax on £4.5bn sales last year compared to the £160m tax bill for Debenhams and Arcadia Group in business rates, according to reports.
Amazon saw a 51 percent increase in sales last year totalling $26.5bn (£19.4bn) but paid only £293m in tax on $17.5bn (£12.78bn) sales in 2019.
Chris Sanger, head of tax policy at EY, points out that online retailers have a “competitive advantage” compared to physical retailers in not having the burden of paying business rates.
“We’re now seeing the consideration of whether an online sales tax could be used to mitigate some of the business rates cost to effectively spread the cost of business straight across the sector,” He says.
In July, the government called for evidence looking at potential alternatives to current taxes. This included a two percent ecommerce sales tax with the view it would help physical stores to compete with online retailers and shift some of the burden.
Jesse Norman MP, financial secretary to the Treasury, told the Treasury Committee that “when we thought of business rates in the recent consultation, we touched on the idea of an online sales tax and just put that out there for discussion and evaluation and we’re still reflecting on that”.
According to leaked emails, Treasury officials have called retailers and tech firms to a meeting this month to discuss how an online sales tax would work, reported The Times.
“The idea that the high street can be taxed back into life by making online less financially appealing is too narrow in focus,” said IMRG’s Mulcahy in a email. “Online boasts many advantages over high street stores, more choice, accessibility and convenience, plus better availability generally, suggesting the issue requires a more fundamental appraisal.”
Critics say introducing an ecommerce sales tax could cause mean double tax requirements for omni-channel retailers.
“Further taxes would simply force up prices and harm consumers. The solution to the challenges on the high street must be to reduce the huge costs they face, not to raise costs for others,” said Tom Ironside, director of business and regulation at the British Retail Consortium (BRC), in a statement.
There have been suggestions that rules should take a green approach, such as a taxation on distribution or deliveries to encourage sellers and consumers to reduce the environmental impact caused by online shopping.
“The challenge with any such taxes is to make sure that the response to the tax is more than merely adding a further tax or cost onto those deliveries, which would serve to increase prices, but not necessarily achieve the environmental aim,” says EY’s Sanger.
The budget is to be announced on March 3.