Chancellor Phillip Hammond has proposed a new tax, dubbed the ‘Amazon tax’, which has had mixed reviews. He wants to increase the amount of tax payable by online businesses that sell products on the internet. Hence, the nick name “Amazon tax”. His reasoning, explained to Sky News, is: “We want to make sure that the high street remains resilient and that we also make sure that taxation is fair between businesses doing business the traditional way and those doing business online.”
Currently, online retailers pay tax in the country where they bank their profits, but the Chancellor’s idea is to tax their sales in the country they are made. Whatever they sell in Britain, is taxed in Britain. As he sees it, this would level the playing field for those businesses already paying Corporation Tax and VAT.
How much online shopping do we do in the UK?
The Office of National Statistics produces quarterly research into retail figures called ‘Statistical bulletin: Retail sales, Great Britain: July 2018’. The most recent figures show that there is a small amount of growth in online sales, for department stores and online-only retailers.
The main takeaway from this report, concerning online sales, reads: “Online sales as a total of all retailing continued to increase at 18.2%, reaching a new record high proportion of total retailing.”
In context, for every £100 spent, £20 is being used to buy online. 10% of the UK’s GDP is generated by the digital economy. Other countries of similar economic standing are only working at half that amount.
Rhian Murphy, Head of Retail Sales at ONS, said: “Many consumers stayed away from some high street stores in July, but online sales were very strong, supported by several retailers launching promotions. Food sales remained robust as people continued to enjoy the World Cup and the sunshine.”
So, there is a significant proportion of spending tied up in online sales – no real surprise in our interconnected, multi-platform digital world. Therefore it is important to rectify any taxation discrepancies now, as the gap will only widen.
Is the ‘Amazon Tax’ the best way forward?
Philip Hammond seems to think this is a good way to redress the balance between online retailers and the struggling British high street stores. But industry experts see there is a disconnect between this proposal and the actual cause of declining high streets. The very existence of business rates, which really hit bricks and mortar businesses, is in question. Are they an old fashioned, relic of the tax system that should finally be scrapped in favour of a simple tax on sales? It would remove a major cost that online retailers don’t have and reinvigorate high street trade. Instead of a new tax that simply makes tax a massive burden for all businesses.
It’s a tricky one. The tax system should be fair to all that use it, but extra taxes cost businesses and can stifle their growth and innovation developments. As consumers, what will the impact be? Businesses have to make money, so it is a sensible prediction that any extra tax will unavoidably be passed on to the consumer at the end of the chain. What do you think?