Rishi Sunak could levy online sales tax to protect high streets

Rishi Sunak is exploring plans for an online sales tax to protect high street shops amid mounting competition from internet retailers.

Against a backdrop of rising retail job losses and store closures triggered by the coronavirus crisis, the chancellor is looking at taxing internet shopping for England and Wales as a potential replacement for business rates – the levy on companies based on the premises they occupy.

The possibility of a digital retail tax emerged in a call for evidence launched by the Treasury last week. The government is facing a hole in the public finances of more than £322bn as the coronavirus pandemic plunges Britain into the deepest recession for 300 years.

As part of the process – which is due to be completed by spring 2021 – a consultation paper said the Treasury was “exploring the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates”. According to the Times, Sunak is considering two types of online retail tax: a levy of about 2% on all goods bought online, raising £2bn a year; and a tax on consumer deliveries, which would also be expected to curb traffic and pollution.

Major high street retailers have been calling for an online sales tax as British shoppers increasingly buy goods online.

Tesco’s chief executive, Dave Lewis, has previously called for the government to launch an “Amazon tax” on online sales to prevent more high street shops from going to the wall. Britain’s biggest supermarket said a tax of 2% on online sales of physical goods would raise £1.5bn a year, enough to cut business rates by 20% for all retailers.

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Late last year, the Commons Treasury committee called on the government to examine an online sales tax, while warning that the system of business rates was broken and placed an unfair burden on bricks-and-mortar retailers.

An online sales tax could, however, push up the cost of internet shopping at a time when households are coming under growing financial pressure and as many consumers stay away from the high street because of Covid-19. Online shopping has risen since the start of the pandemic to about £3 in every £10 spent in total, from about £2 before the crisis.

Such a tax would also come in addition to a digital services tax launched by the former chancellor, Philip Hammond, which came into force in April.

Sparking tensions with Donald Trump as the government looks to strike a post-Brexit US trade deal, the digital services tax is levied at 2% on the revenues of big technology firms such as Amazon, Google and Facebook that derive value from UK users. However, it raises relatively little: the government expects it to bring in around £300m this year.

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