Will an Online Sales Tax save the high street?

The latest government bid to save our high streets is being discussed in parliament but the impact on retailers and consumers is still uncertain.

As the country emerges from the pandemic, bricks and mortar retailers are under pressure to compete with the online marketplace which many relied on during lockdown.  Support for local town centres is badly needed and an Online Sales Tax (OST) is being discussed as one way to redress the balance.

A government consultation announced in last year’s Autumn Budget is considering whether cash collected from an OST could help fund a reduction in business rates, the property-related charges that fund local services for bricks-and-mortar retailers. Whilst a reduction in business rates is long overdue, experts argue that the measures announced so far are not straightforward and do not go far enough.

If it goes ahead, the tax is likely to be levied on the online sale of goods to consumers. This could make things difficult for businesses since identifying when a sale is made ‘online’ may not always be simple.  This would be especially true for retailers that deal with customers over the web and in person.  The dividing line between purchases for business or pleasure will also be hard to delineate without retailers scrutinising the profile of their customers in detail.  Even if all these difficulties can be ironed out, the value of any new tax is likely to be passed on to consumers, making shopping more costly.

The government says it would aim to minimise any difficulties for both consumers and businesses.  However, some doubt HM Revenue and Customs’ ability to support and deliver a smooth roll of out the measures.  If the proposals do go ahead, it will be important to protect smaller bricks-and-mortar retailers who are attempting to establish an online presence.   To address this, the government could introduce an allowance, which would permit a certain amount of online sales to be made before any tax is levied.

Andrew Cross from Arcus believes that further consultation on tax reform is needed in order to work out how to fund reduced business rates for high streets in towns such as Oakham without undue complexity and cost.

Financial Secretary to the Treasury Lucy Frazer said; “Whilst we’ve made no decision on whether to introduce an Online Sales Tax, it’s right that, given the growing consumer trend to shop online, we work with stakeholders to assess the appropriate taxation of the retail sector.”  The consultation is due to end on 20th May 2022.