Tax on, tax off: Online sales tax to help level retail playing field?

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By James Findlater – 16th April 2018

It’s not often you hear someone in the commercial property business arguing for the introduction of a new tax, but it’s clear that there now has to be some sort of fiscal measure to redress the balance between the domains of online and physical retailing.

Whilst it would be wrong to completely strip online retailing of its ability to deliver costs savings to shoppers, it’s clearly inequitable that one set of retailers should be burdened by UK taxes simply because they have ‘set up shop’ while the other trades unfettered.

The FAANGs (Facebook, Apple, Amazon, Netflix, Google) may argue that they are not physically domiciled anywhere, but at point of sale, they are benefitting from advantageous access to UK consumer markets through the lower cost base afforded by avoidance of business rates and UK corporation taxes.

The competitive advantage of trading online should come from not having to pay rent for stores nor the attendant costs of staffing that network of outlets. This is not about head-in-the-sand protectionism, it is seeking to deliver the blend of online and physical retailing which it is clear that people want.

Otherwise the degrading of town centres and other retailing environments will accelerate. In recent weeks, we have seen two secondary shopping centres sell for a fraction of their pre-financial crash value. The positive aspect of this is that they are now owned by investors who are not labouring under historic valuations (or indeed, debt burdens) and so there is the financial elbow room to take them forward again.

However, that process is severely hampered because letting space is made virtually impossible by the associated business rates burden. It is not uncommon for the rates liability of a shop to be well in excess of the asking rent. In this context, something has to be done to bolster the inherent viability of physical retailing.

Whilst the Government is tinkering with the Business Rates system, it is not about to kill a Golden Goose which produces such a level of revenue. However, introduction of some type of online business tax mooted in the Parliamentary Spring Statement suggests there seems to be a political will to level the playing the field.

In this respect, the FAANGs are the recurring targets that get cited but this actually obscures the much more profound effect of the myriad – much smaller retailers – which are trading online. Accordingly, whilst taxing Google or Amazon may actually be just a case of redrawing the remit of corporate taxation, a far more difficult challenge is to frame a new tax regime which encompasses the billions of transactions that are carried out online.

Whether new taxes are introduced for online retailers, or existing taxes are reduced for “offline” retailers, what’s certain is that the town centres will continue to suffer until the imbalance is redressed.