High Streets Initiative · 15 August 2018

Will an “Amazon tax” help save the high street, or dismantle ecommerce success?

Amazon Tax
Princesshay precinct in Exeter, the first pedestrianised shopping street in England

The chancellor has tabled the idea of a so-called “Amazon tax” to level the playing field between online and high street retailers.

Speaking to Sky News this week, Hammond said the government was seriously considering a designated tax for online marketplaces, such as Amazon and eBay, based on the “value generated” by the platforms.

“We want to ensure that taxation is fair between businesses doing business the traditional way and those doing business online,” he said.

“That requires us to renegotiate international tax treaties because many of the big online businesses are international companies.

“If we can’t get international agreement to do this we may have to look at temporary tax measures to rebalance the playing field until we can get international agreements.”

New accounts published at the beginning of August revealed that Amazon UK Services’ tax bill in 2017 was £4.6m, down from £7.4m a year previously, despite pre-tax profits almost trebling from £24.3m to £72.3m.

Read more on the current state of UK high streets:

Amazon claimed it’s services arm, which inludes warehouse and logistics and employs two-thirds of its 27,000-strong UK workforce, paid all taxes required by British law, and attributed some of its reduced tax bill to a rise in share-based payments to workers.

Meanwhile, Homebase has become the latest retailer to cut its physical presence, announcing 42 store closures and 1,500 job losses.

With business rates rises already stretching high street retailers to the limit, many retail groups have called for stronger government intervention to level the playing field between bricks and mortar businesses and online retailers.

Bricks and mortar call for action

Britain’s bookshops have already thrown their weight behind a proposed Amazon tax.

Meryl Halls, managing director at the Booksellers Association, urged the chancellor to act swiftly on the “crucial matter” and help protect high street retailers.

Net loss of high street stores by sector in the last year

• Pubs: -717 units
• Banks: -711 units
• Travel agents: – 679 units
• Post offices: -577 units
• Newsagents: -364 units

“This can’t wait till post-Brexit – the tax burden on the UK’s high streets – and the advantages exploited by online retailers in the same arena – are having a parlous effect on the retail industry, one of the nation’s biggest employers, and the most visible manifestation of the health of the wider economy,” she said.

“The Booksellers Association, together with many others, has repeatedly made representations to our government and parliamentarians, warning them that this was likely to happen if nothing were done to even the playing field. It’s vexing that it takes high profile casualties like the House of Fraser to force the government to act, but we hope they will follow through.

“A ruinous business rates system affecting retailers large and small and the egregious tactic of transfer pricing by some online giants are a toxic pincer movement on our high streets, and only governments can make the difference required to allow for an equitable and fair system to be imposed.”

Ecommerce resistance

However, Hammond’s proposal to lessen the advantage of ecommerce firms was met with resistance from the online community.

A study from delivery comparison site ParcelHero suggested that a new digital sales tax on ecommerce businesses could damage the “one remaining successful retail sector”.

The study claimed many multi-platform “bricks and clicks” stores could end up paying excessive business rates as well as a new Amazon tax.

Commenting on the research, David Jinks, head of consumer research at ParcelHero, said the high street’s concerns were “far from being a one-way street”.

“Online limited companies already pay corporation tax at 19% and VAT at 20%, and may also be paying their own business rates on warehousing and offices. And there are costs ecommerce businesses face that established high street stores don’t – online retailers generally have significantly larger technology investment and delivery and returns charges, for example.

“The most successful retail businesses today have a mix of physical stores and ecommerce sales. Multiplatform sales are the key to a successful modern retail business. It seems likely a new digital sales tax would apply to online sales for businesses with high street stores, as well as pureplay online retailers. In which case large stores weathering the business rates storm could be hit by even more taxes.”

Jinks added that a new tax could introduce an unfair advantage for overseas ecommerce giants over UK-based web stores.

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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