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Government considers online sales tax

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The Treasury’s Business rates review sets out two potential alternatives which could, in principle, replace the current system of business rates.

The government is seeking evidence on the potential risks and benefits of introducing an online sales tax which, given the increase in online retail sales (accelerated by coronavirus), it says could ‘provide a sustainable and meaningful revenue source for the government’ even though it might not replace business rates entirely.

Rather than the current system of tax based on the rental value of non-domestic property which arguably imposes an unreasonable burden on traditional retail businesses in comparison to online retailers, the proposal would seek to level the playing field by levying a tax on companies based on their online sales. The government’s consultation paper itself notes that may retailers are already opposed to such a tax – on grounds that it would increase costs for consumers, make the transition to online more difficult for offline retailers, distort the market and penalise more efficient, innovative businesses.

The consultation asks which services and goods should be subject to an online sales tax, what the effects of its introduction would be on, for example, consumer behaviour and prices, and how such a proposal might affect the distribution of taxation.

RSM reports that a 2% levy on sales of online goods would raise around £2bn a year for the Treasury, and would ‘apply fiscal pressure to shift consumers away from online spending’, accompanied by a mandatory charge for consumer deliveries. The firm notes that the levy could have the reverse effect of dampening enthusiasm for tech and ecommerce entrepreneurialism in the UK, along with simply resulting in consumers spending less money.

Adam Harper, Director of Strategy and Professional Standards at the AAT comments that, set against the government’s need to address the current economic challenges, ‘exploring the options for taxing online shopping as a potential replacement for business rates seems appropriate’. The AAT also calls for online marketplaces to be liable for the collection and remittance of VAT as one way to increase compliance and provide more balanced treatment of online and offline small businesses (a number of measures have already been introduced, for example to make the online marketplace jointly and severally liable for VAT where the seller fails to comply with a requirement of UK VAT law).

The consultation also considers an alternative capital values tax based on the current combined capital value of the land and the property, with liability falling on the owner rather than on the occupant of the property. This raises a number of questions including how to ascertain current capital value and how to ensure compliance where the owner is located outside the UK.

Reponses on the business rates ‘alternatives’ section of the review are invited by 31 October 2020. 

Issue: 1498
Categories: News