Government considers online shopping tax in business rates review

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A tax on online shopping is one option being considered by the government as it reviews the business rates system.

The UK Treasury is looking for alternatives to the existing business rates scheme, which focuses on retailers with stores rather than those that trade online only. It has issued a call for evidence as part of the new review of the business rates system. 

Setting the context, the call for evidence document points out that online shopping has increased as a result of Covid-19, but says it’s too soon to say what the lasting impact of the virus might be on the commercial property market. It suggests that alternative taxes might either replace or complement the existing business rates system long-term. 

The document says: “The government will need to strike the right balance between continuing to raise the revenue necessary to fund essential public services and supporting the economic recovery. Therefore the government is again seeking views on the case for the introduction of alternative taxes to either replace or complement the business rates system. Any move towards the introduction of a new tax would be a long-term proposition.”

It points out that in previous consultations the government has stuck with business rates because they were easy to collect, more easy to localise to an area and they were relatively stable and predictable. It also says that an online sales tax would be unlikely to raise enough money to replace business rates, and so would be more likely to exist alongside business rates than replace them.

However, it also points to concerns from retailers that an online sales tax would increase prices for shoppers and could distort the way that shoppers buy. It said: “As a fundamentally different tax to business rates, some raise concerns that an online sales tax would simply increase the costs for consumers of many regularly purchased items or make it harder for offline retailers to adapt to changing consumer habits and establish their own online presence. There is also a risk that an online sales tax could, subject to its scope, be distortive and incentivise the bundling together of certain online purchases of goods and services; any new tax should maintain purchasing neutrality and not incentivise this consumer behaviour.”

And it adds: “While the scope of an online sales tax would need further consideration, it could be levied on the revenues that businesses generate from online sales to UK customers, and focused on sales in direct competition with those carried out through physical premises. Given divided opinion on this idea, the government is seeking evidence on the potential effects.”

Responses on the online sales tax are being sought by October 31, while the government would also like to hear views about existing reliefs and the business rates multiplier by September 18. Responses can be submitted online or via email to BusinessRatesReview2020@hmtreasury.gov.uk.

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