An online sales tax would be a pain for Amazon, but a blow for our stores

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Tuesday, June 21, 2022 6:00 a.m.

By:

Tom Clougherty

Tom Clougherty is chief tax officer at the Center for Policy Studies.

Our main streets are unlikely to benefit from the tax

The Treasury is considering whether to introduce an online sales tax (OST) as a “means of rebalancing the taxation of the retail sector between online and in-store retail”. A decision is expected in the fall – probably as part of the chancellor’s budget.

If the government has any common sense, it will be far from taking the OST from consultation to reality. Moving forward would be bad for consumers, for business and for the government’s broader policy agenda.

It would also be unpopular, with opposition to the tax felt more strongly than support for it – especially in the “red wall” regions the Tories are desperate to cling to in the next election. Only Londoners and high earners seem to favor the OST.

Consumers are already suffering the impact of soaring fuel and energy costs, inflation at 9% a year and rising, and National Insurance increases eating away at take-home pay. It would be perverse to impose a new tax on consumer spending now.

Make no mistake: consumers will bear the brunt of this tax, even if it is levied on sellers. According to a survey conducted by Public First, 83% of companies would pass on its costs to their customers. Oxford Economics modeling indicates that consumers would absorb 72% of the load.

To make matters worse, the impact of the tax is likely to be felt hardest in parts of the country the government wants to level out – the relative burden being highest in the northeast. As far as jobs are concerned, anything that harms online commerce would hit the Midlands hardest, where warehousing and delivery work is particularly important.

This brings us to the business impact of a corporate action. Its proponents sometimes give the impression that there is a clear boundary between online commerce and in-store commerce. But in a country where the majority of businesses sell products online, and another third say they plan to start doing so, it’s really hard to tax online sellers without hurting those in the “real world” too. .

The OST is often dubbed “the Amazon tax” by its proponents, with the implication that it will only target the biggest companies. Yet our brief experience with another online levy, the Digital Services Tax, shows how unlikely these expectations are to be realized. Faced with this tax, Amazon has increased the fees charged to third-party sellers using its platform. In 2020, small and medium-sized businesses accounted for 60% of sales on amazon.co.uk. Obviously, it is difficult to tax large corporations without affecting smaller ones.

Ultimately, we would be stuck with an unpopular tax that would run counter to the cost of living and government leveling programs, and hurt businesses and consumers. It could also be a nightmare to implement, as the government’s consultation document makes clear, and risks making the UK an inhospitable destination for technology and innovation.

So why even discuss it? Well, the government insists it’s not aiming to discourage online retail – it’s just raising money to cut high street shops’ shopping rates. This is a laudable goal in itself.

Indeed, cutting corporate rates through a fundamental overhaul of the system is not just what Boris Johnson’s 2019 manifesto promised, albeit implicitly: it is also one of the best things we can do to make our tax system more competitive, more business-friendly, and more pro-growth.

But this program should be part of a broader effort to reform and rebalance the tax system. Tying any prospect of corporate rate reform to a new tax — especially one as problematic as this — is short-sighted and likely to prove counterproductive.

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