03 08 2020

UK Considering New Online Sales Tax

Alongside a review into the reform of the business rates system (commercial property tax) in the UK, the Government is looking at possible taxes that could replace or supplement the regime, including a new tax on online sales

In a call for evidence on reform of business rates, the Government said COVID-19 may have made previously considered policy alternatives to business rates more attractive.

The call for evidence states: "Some stakeholders continue to advocate for alternative or complementary systems of taxation to business rates, as highlighted by the Treasury Select Committee's 2019 report. More recently, COVID-19 and associated public health measures have significantly affected how non-domestic property can be used. COVID-19 has also, in the near-term, increased the use of online shopping. It is too soon to tell what the lasting impact of COVID-19 might be on the non-domestic property market."

"The government will need to strike the right balance between continuing to raise the revenue necessary to fund essential public services and supporting the economic recovery. Therefore, the Government is again seeking views on the case for the introduction of alternative taxes to either replace or complement the business rates system. Any move towards the introduction of a new tax would be a long-term proposition."

On options, the Government's report revisits previously proposed alternative taxes, or changes to existing taxes, including an online sales tax, or increased rates of VAT or corporation tax. The Government acknowledged, though, that, "each proposal has potentially significant challenges, some practical or administrative, and others more fundamental."

"In light of the advantages of property taxes set out above, this call for evidence focuses on an alternative means of taxing non-residential property as a potential replacement for business rates and, due to the prevalence of concerns about online retail trends and divided public opinion, an online sales tax."

"Given that an online sales tax would be unlikely to raise revenue sufficient to replace business rates, we expect that any such tax would exist alongside business rates."

The report says: "Some commentators argue that the business rates system creates a distortion within the retail sector, favouring online retailers that can operate without the high-value properties that are a feature of more traditional retail. This has led to proposals that the government should levy a tax on companies based on their online sales, and that this could be used to fund business rates reductions for retail properties."

The report adds: "There is also a risk that an online sales tax could, subject to its scope, be distortive and incentivise the bundling together of certain online purchases of goods and services; any new tax should maintain purchasing neutrality and not incentivise this consumer behaviour."

Calling for input on the measure, the Government appears to express its support, stating: "Historical trends in online retail sales, and the more recent increases driven by COVID-19, suggests that while an online sales tax would not replace business rates, it could still provide a sustainable and meaningful revenue source for the government."

"While the scope of an online sales tax would need further consideration, it could be levied on the revenues that businesses generate from online sales to UK customers, and focused on sales in direct competition with those carried out through physical premises. Given divided opinion on this idea, the government is seeking evidence on the potential effects."