Would an Online Retail Tax drive Customers Back to the High Street?

Would an Online Retail Tax drive Customers Back to the High Street?

The British Retail Consortium (BRC) is investigating the way business taxes function within the fast changing retail sector partly to tackle the problem of the decline in high streets across the UK. Helen Dickinson, the Director General of the BRC has noted that the retail environment involves people and property both of which have seen increased taxation. The reduction in Corporation Tax has made some headway to redress these rises, but given the rapid changes within retail it makes sense to consider the effects of the tax system.

Don Baker, the Chairman of Rating at Business Rates experts CVS has noted in Retail Week that there is the need to address the problem of high business rates as an obvious way of keeping shops open on our High Streets. At the very least, a more efficient system regarding appeals would certainly take some of the strain off High Street Retailers. They would then be refunded more quickly following inaccurate rates bills. Don Baker also posits the idea of fine tuning the 1967 General Rate Act which presently does not reflect a decrease in the value of a property and hence rental amounts in areas of economic decline.

The Chief Executive of Sainsbury’s, Justin King is also in support of changes. He would like to see the high business rates for retailers and the little or no tax for internet based retailers to be evened out in line with recent legislation in the USA. This Market Fairness Act 2013 enables taxes to be collected for online sales and Justin King thinks a similar policy would work well in the UK.

However, online retailers argue that they already pay corporation tax and VAT. Furthermore, they are likely to have higher delivery costs and technological expenses than their traditional high street counterparts, so online retailing isn’t the expense free avenue it is sometimes accused of being.

Retailers on the high street pay rates for all of their outlets and these are certainly an issue of contention, but those running businesses online often operate from a much smaller number of properties partly because they simply cannot afford the high rents and rates charged on the High Street. Consequently, taxing online retailers would curtail entrepreneurs and many established small businesses thus denting the UK’s position as world leaders in online retailing. The online retail industry has expanded in the UK faster than anywhere else in the world and is important for sustaining growth in the UK economy. Most new employment stems from small companies, so an online sales tax could easily weaken this growth. If online companies go out of business, customers may well shop on online sites based in other parts of the world rather than venturing on to UK high streets.

Whether a retailer operates online or on the High Street, the success of a business depends on many factors. We know that an appealing shop front is crucial for drawing customers in, but any profits can be quickly wiped out by high rates and high taxation will have the same negative effect on online sales. Bringing bricks and mortar taxation down in line with online retailing rather than penalising online entrepreneurs seems the best way of supporting businesses all-round.

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