Will an Amazon Tax really save the UK high street?

In an attempt to rescue brick and mortar retailers in the UK, Chancellor of the Exchequer, Philip Hammond, suggested bringing in a special tax on online businesses. Coined the "Amazon Tax" due to the recent uproar of the technology giant's reported tax avoidance in the UK, the Chancellor commented that "temporary tax measures to rebalance the playing field" might be required. The suggestion also follows the closures of a number of high street brands such as Toys R Us and Maplin, with others such as Mothercare, Carpetright and Poundwound following this year alone.

"The Chancellor’s comments come at a time when there is a big discussion about how innovative, online businesses should be taxed and regulated more generally," explains Matthew Rowbotham, a partner at law firm Lewis Silkin. "The UK tax system has always found it easier to tax bricks and mortar – business rates a massive cost for retailers – so it’s no wonder high street retailers are feeling the pinch."

UPDATE: UK Government introduces digital services tax in Autumn Budget. 

"Tech giants" with more than £500 million in revenue will be taxed 2% tax from April 2020, generating £400 million for the UK economy.

Read more here.

In the previous year, the UK's high street suffered 5,855 store closures, according to PwC. Many believe this to be the result of consumers looking to buy online – the UK is second in Europe for making eCommerce purchases, behind Norway. However, this surge in online purchasing and abandonment of brick and mortar stores is not reflected in the taxes paid by some of the bigger brands such as Amazon.

"Amazon’s ability to pay 20 times less tax than other similar sized organisations, yet apparently still operate within the law, clearly illustrates the absurd situation with the current tax legislation," says business consultant Susan Andrews of Kis Finance. "Whilst the market has shifted towards omnichannel retailers, the UK’s tax regime in relation to the retail sector remains antiquated; high street stores are subject to business rates that effectively operate as a property tax, with online retailers currently able to avoid these costs."

International cooperation

In October 2018, Hammond also laid out his plans for a new tax on technology companies during the Conservative Party Conference and hinted that there would be tougher plans for digital brands in the autumn budget. Whether this focuses on online retailers still remains to be confirmed, however, there has seen been concern from the industry that smaller and medium-sized online retailers will suffer rather than large ones.

In order to successfully tax companies such as Amazon, the Chancellor would need international cooperation. This means that there will be no gaps and reduces the risk of businesses being taxed twice.

"It seems that in this case, the Chancellor is talking about a more general rebalancing, a way of measuring – and taxing – value generated in the UK which would shift the burden of profit taxes more towards where the customers are and away from the corporate headquarters," summarises Rowbotham.

Shifting high street rates to online

The growth of retailers such as Etsy and the rise of social media influencers – according to ViSenze, 75% of consumers are inspired to purchase by image and video content they have seen online – has also pulled brands and shoppers alike online. Escaping high business tax rates and premise costs, and providing better buyer experience has meant that smaller retail platforms have thrived. 

Hammond's potential "Amazon Tax" could put a stop to that. Andy Burton, CEO of eCommerce solutions provider, Tryzens, believes the government misunderstands the current shopping landscape, which could effectively negatively impact retailers, especially those with omnichannel strategies.

"Shifting the burden of high rates from the high street to online companies is both naïve and short-sighted," he says. "The irony is that most retailers today have an online presence and typically these sales channels of the retailer are growing disproportionately higher than the physical store sales. There is a reason for that and it is nothing to do with business rates but of consumer preference. 

"Asking a retailer to favour one channel over another is missing the big picture of what is changing in society today and risks stifling investment in innovation, where we in Britain are leaders in the world of eCommerce."

So will this "Amazon Tax" really help the high street?

"If online retailers have to increase their prices a bit to maintain their margins, is that really going to push consumers back to their shopping habits of 20 years ago?" asks Lewis Silkin’s Rowbotham. “The effect of such a tax could be quite radical, but it seems like a blunt tool to revitalise high-street shopping when so much has changed in society.

"In truth, it helps shore up the public coffers at a time when we could be in for some rocky years. It’s hard to blame the Chancellor for wanting to do that.”

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