UK weighs up online sales tax to prop up high street shops

UK treasury has announced a review of business rates, suggesting a new online sales tax could provide ‘meaningful’ revenue

Online retailers in the UK face the threat of a new sales tax as the government seeks ways to prop up high street shops, Downing Street confirmed on Monday.

Last week the treasury announced a review of business rates to reduce its burden, suggesting that a new online sales tax could provide a “sustainable and meaningful revenue source for the government”.

Number 10 said on Monday it had published the call for evidence to examine all aspects of the business rates system, which imposes a levy on most non-domestic premises. “As part of this we will consider the case for introducing new taxes...including an online sales tax,” a spokesman said.

The Covid-10 pandemic struck when bricks-and-mortar shops were already struggling against competition from online sellers with lower fixed costs. The treasury consultation highlighted concerns that online competitors did not need to rent “high-value” properties from landlords.

Online retailers have thrived during the lockdown, with people unable to visit non-essential shops for three months.

Even after an easing of restrictions on the sector last month, footfall is still significantly lower than it would usually be at this time of year, meaning further opportunities for online operators to increase their market share.

The review launched last week by chancellor Rishi Sunak will conclude by next spring. In a consultation paper the treasury said it was "exploring the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates".

The Times newspaper reported on Monday that this might involve two new taxes: a levy of 2 per cent on all goods bought online – potentially raising £2 billion a year – and a tax on consumer deliveries.

The consultation concedes, however, that the online tax would not raise enough to replace business rates entirely. “We expect that any such tax would exist alongside business rates.”

More broadly, however, the treasury is considering separate, more radical plans to abolish business rates and replace them with a “capital values tax” whereby the levy would be paid by the owner of the property rather than the tenant.

Internet giants

In April the British government introduced a new "digital services tax" to raise money from some of the internet giants, such as social media companies and online platforms. That policy has antagonised the US because it lands heavily on American companies such as Google, Facebook and Amazon.

But an online sales tax would be more controversial because it would impose a tax on a potentially more efficient form of retailing, hitting not only tech giants.

Last year the Commons treasury committee called on the government to consider an online sales tax to create a more level playing field in the retail sector.

Downing Street said the pandemic was having a “significant impact” on how business was done in the UK, and that this would become more clear over time. .

– Copyright The Financial Times Limited 2020