The UK Treasury has launched a preliminary consultation on how the taxation of online sales could be rebalanced in the retail sector.
The consultation follows the changes the sector has experienced as a result of the pandemic, including rapid growth in online shopping, and will analyze the potential fiscal imbalance between in-store and online retailers.
Some stakeholders suggested that the tax regime puts in-store retailers under additional pressure. This led to a review of carrier tariffs, which concluded that they should remain in place as they fund local services and there is no alternative to replace them.
To rebalance the tax system and finance the reduction of professional tariffs for traders, the government is currently debating the possibility of an online sales tax (OST). “Given the significant changes in the retail market and the evolution online, it is only right that the government reassess the taxation of this sector,” the consultation document states.
As part of the consultation, which was part of the promises set out in the fall budget, the government will analyze the pros and cons of implementing the OST, and how it would respond to the challenges currently faced by retailers, as well as as the effects on consumers and businesses. before a decision on this front. The consultation will run from February 25 to May 20, 2022.
“While we have not made a decision on whether to introduce such a tax, it is true that given the growing trend of consumers buying online, we are working with stakeholders to assess the tax appropriate from the retail industry,” said Lucy Frazer, Financial Secretary. at the Treasury.
However, the Treasury acknowledges that implementation “would not be straightforward” as the difference between online and offline activity in retail is becoming increasingly blurred. The idea is to gather views on areas such as which transactions would be taxable, what forms a corporate action might take, and how to define an online sale.
The government expects the consultation to attract a range of different opinions. For example, retailers with a strong physical presence will say the industry is “overloaded” with business rates compared to online businesses in the same space. Conversely, others will see the increasing competition in the online space as a demonstration of innovation and growing choice options for consumers that should not be taxed more.
“Technological change, innovative business models and evolving consumer choices have changed the face of our cities and towns for generations, transforming the way we live,” the consultation document states. “The government recognizes the value of shopping streets and vibrant town centers to local communities as places to live, work and visit.
“City centers have continued to evolve and the government does not intend to disrupt innovative businesses; however, it is important to remain responsive,” he added.
Trade association TechUK pointed to the government’s own analysis, which says the OST would be “regressive with the greatest impact on low-income households”.
“Over the last 10 years the difference between online and offline sales has become increasingly smaller,” said TechUK chief executive Anthony Walker, adding that the trend had been further accelerated by the pandemic.
“E-line sales tax proposals therefore risk becoming a general sales tax for consumers and businesses when concerns about the tax burden and the cost of living are high,” he said. “For this reason, we do not believe the government should proceed with online sales tax.”
Walker noted that the government is incentivizing businesses to adopt e-commerce solutions through the Help to Grow: Digital program, which this proposal would tax them for using. “So this announcement is confusing and sends mixed messages to businesses,” he said.