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"Amazon tax" could backfire for small retailers

28 July 2020

A digital retail tax intended to level the playing field between online retailers and high street stores would push up prices for consumers, the British Retail Consortium has warned.

The Treasury is said to be exploring replacements for business rates, including "alternative property and online taxes"; newspaper reports suggest that chancellor Rishi Sunak is considering a 2% levy on goods bought online.

But with the COVID-19 pandemic driving more sales online, such a tax could be damaging for small retailers who are trying to boost their ecommerce activity in order to survive.

Tom Ironside, director of business and regulation at the British Retail Consortium (BRC), said: "Throughout the pandemic, many of us have been relying on retailers to ramp up their online services to ensure we can all get the goods we need. The government should not harm these efforts by further taxing the businesses providing these services, and the people they serve."

However, the Guardian reports that Tesco chief executive Dave Lewis has called for an "Amazon tax" on online sales to stop more high street shops from closing down. He said that the money raised would be enough to cut business rates by 20% for all retailers.

In April this year, the government introduced a digital services tax levied at 2% on the revenues of big technology firms such as Google, Amazon and Facebook. The Treasury consultation on a digital retail tax is expected to be completed in Spring 2021.

Elliott Jacobs, EMEA commerce consulting director at LiveArea, said: "The online sales tax seems like a short-sighted move … [it] shows a lack of understanding from the government in terms of how ecommerce and retail are intertwined. What they should perhaps be thinking of is a tax break, for instance, for struggling retailers to invest in their digital operations. If consumers want to spend their money online, why would you make a move to discourage this? It's unlikely a 2% tax will change the modern consumer's habits, and make them shop in-store.

"We should really be encouraging the digital economy, and focus on embracing omnichannel. Fulfilment options like click-and-collect and ship from store keep bricks-and-mortar stores relevant in the eyes of the online shopper, so retailers should be encouraged to embrace all channels, and not be penalised for the one that is likely going to be the most profitable at present."

Written by Rachel Miller.

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