An online sales tax can’t save the main street

Covid-19 may, for now, be on the back foot, but Britain’s high streets are still under threat. The pandemic has accelerated fundamental changes in the retail industry that cannot be undone. The proportion of UK retail sales made online increased sevenfold between 2006 and March 2020. As the coronavirus took hold and people found themselves beholden to the virtual market, change accelerated . Now that the “new normal” is beginning, even those who are committed to “buying local” may find it hard to stop using the new conveniences provided by e-commerce; foot traffic on main streets is still down from pre-pandemic levels.

While retail innovation should be welcome, the decline of Britain’s high streets should not be. They serve as the heart of cities, towns and villages, providing a connection between a community’s past and present in a way that cannot be replicated in any other space – virtual or physical.

The government’s commitment to finding ways to support city centers is therefore welcome. Its latest foray comes in the form of a consultation paper on a possible online sales tax. The money raised would be used to fund a reduction in commercial rates – the property taxes that fund local services – for brick-and-mortar retailers, who tend to pay much higher rates for their property portfolios than their purely online counterparts. for their distribution centers. Although this may sound like a good idea, there are a number of complications.

A reduction in business rates is certainly overdue. The temporary relief, linked to Covid, will expire in April 2023 and the changes announced so far do not go far enough. Reducing the gap between property revaluations from five to three years should ensure businesses are taxed on more accurate commercial rent estimates. However, the legal requirement that each reassessment cannot cause the government to lose money may limit the relief this brings.

Creating space to reduce retail sales tax bills is important, but doing so through online sales tax isn’t easy. The government says it would aim to minimize hardship for both consumers and businesses. The Treasury will know this is no easy task.

If it continues, the tax will likely be levied on the “online sale of goods to consumers.” This would necessarily complicate things for companies. Identifying when a sale is made “online” isn’t always straightforward, especially for retailers who interact with customers on the web and in person. The line between business and leisure purchases will also be difficult to draw without merchants studying the profile of their customers in detail. Even if all of these difficulties can be ironed out, the value of any new tax is likely to be passed on to consumers, making purchases more expensive.

If the government continues, it will be necessary to protect small physical retailers trying to establish an online presence. An allowance, which would allow a certain amount of online sales to be made before any tax is levied, would help in this regard.

According to the Treasury, an online sales tax could send around £1billion a year to brick-and-mortar retailers via reduced rates. While such assistance is appreciated by struggling high streets, there may be more effective and efficient ways to provide support. It would be best to consult now on tax reform that can work to fund reduced business rates for street retail and other government priorities, without undue complexity or cost.

Letter in response to this editorial comment:

UK high streets need professional pricing reform / From Alex Baldock Group, Managing Director, Currys, London W3, UK

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David A. Albanese