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Ecommerce sales tax floated as government looks to prevent retail shifting further online

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The government is once more considering an online sales tax as it looks to prevent retail shifting further online, reports suggest. But critics say the measure would not bring back the British high street – and the government should instead concentrate on increasing corporation tax. 

How such a tax would work in practice, The Sunday Times reported this week, is set to be discussed with technology firms and retailers at a meeting later this month.

Ministers are said to believe that an online sales tax could help to prevent retail sales and retail brands further shifting online and away from high street shops. The idea is being put forward at a time when pureplays Boohoo and Asos have bought many of the previously multichannel Arcadia brands and plan to relaunch them as online-only brands. Boohoo also plans to reinvent Debenhams, which previously operated 118 department stores, as an online marketplace. 

The Treasury is also looking, says the newspaper, at an “excessive profits tax” on companies whose profits have risen sharply during the Covid-19 pandemic. This could potentially draw in some of the online retailers that have benefitted as shoppers have moved online. 

The plans are unlikely to be fully formed in time for the March 3 budget, but could be part of the autumn budget. The Sunday Times quotes a ‘close ally’ of chancellor Rishi Sunak as saying: “He does accept that the way we tax online sales at the moment is killing the high street and something needs to be done on it.”

In March, Sunak is expected to extend furlough and other business support schemes that would otherwise expire in April.

The British Retail Consortium, meanwhile, is calling for a reform of the business rates system to help high street retailers. Today it asks for business rates relief introduced in the first lockdown to be extended beyond March. “Three periods of prolonged closure for some and the ongoing uncertainty around reopening puts many retailers in a precarious position,” says BRC chief executive Helen Dickinson. “If Government wants to avoid further administrations of otherwise viable businesses and thousands of jobs losses, it must provide those firms which have been hardest hit with the necessary financial support, including targeted business rates relief beyond March.” 

The BRC has previously said that an online sales tax would increase prices for consumers, but retail leaders including former Tesco chief executive Dave Lewis, have called for online sales to be taxed. 

While the Treasury has previously floated ideas of an online sales tax, this has yet to amount to a concrete plan. 

Tax and advisory firm Blick Rothenberg says sales or excess profit taxes on online retailers will not bring back the British high street, are unfair and should be replaced by increasing corporation tax.

Mark Hart a partner at the firm, says: “ There have calls for online retailers to be hit with a sales tax or excess profits tax as a means of levelling the playing field for traditional bricks and mortar retailers, but this is only a short-term measure to help fund  pandemic costs.”

He adds: “While there is a place for an online sales tax, setting this at 1 or 2% is not going to address the issue the critical issue for retail on the High Street. An online sales tax should be used as a short-term measure. What is needed is a long-term review of Local Government Funding and the rates system to address the structural changes that are affecting the retail sector.

“Traditional retailers are being hit because rateable values  were set when retail property values were high, and this is now  out of step with retail profits. Maintaining rates at this level will lead only to the closure of an ever-increasing number of stores in our High Street.”

And he says: “A fairer system would be increasing the rate of corporation tax to cover the loss in revenue from rates and then look at the mechanism of allocating this to local authorities coupled with a wholesale review of local government funding.”

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