We DON’T want a digital tax – say shops it is meant to help
After National Insurance storm, Ministers face new row over planned levy
THE Government is poised for a major clash with chain stores over plans to ease the burden of business rates by levying a ‘digital tax’ on internet sales.
Chancellor Philip Hammond gave fresh life to the idea in his Budget speech last week, but sources said the proposal had met with ‘intense lobbying’ from big business.
The issue appears to have split retailers, with many small shopkeepers believing that a digital levy on the likes of Amazon would level the playing field and help revive battered high streets. The online retailer pays a slim fraction of the rates of high street-based groups.
However, last night, the British Retail Consortium, the lobby group for large and small shops, set itself against a levy on internet sales. It said in a statement: ‘An online sales tax is not the answer. That makes no sense when so many retailers are online or want to move online.’
Last month, the consortium hosted a meeting between Business Minister Greg Clark and some of its most powerful members, including Amazon, online fashion giant Asos and Tesco. It said its focus was not to ‘pitch online commerce against shops, but to bring business taxation in line with the changing nature of business in a modern economy’.
The prospect of a digital tax has gathered momentum after years of complaints about how business rates are determined on the basis of property value. The debate has intensified in recent weeks after a revaluation raised the prospect of big rate rises for some firms. The last revaluation was in 2010, soon after the global economic crisis, which depressed property prices.
The Chancellor said of business rates that he ‘cannot abolish them, as some have suggested’. But he said Britain had ‘to find a better way of taxing the digital part of the economy – the part that does not use bricks and mortar’. A raft of retailers including Theo Paphitis, owner of hardware chain Robert Dyas, stationer Ryman and lingerie shops Boux Avenue, called this weekend for a digital tax. But the BRC – whose complex membership structure includes global online firms, supermarket giants and high street stores – seems to be driving a rift through the sector.
Last night, Paphitis, a former judge on BBC2’s Dragons’ Den, said: ‘The Exchequer needs to find some way to receive income from digitaldi i lb business,i otherwiseh i thishi justj doesn’t work. I’m expected to pay more in rates in my shops even where fewer people are coming in. Around 15 per cent of my shops now pay more in rates than rent.’
Smaller retailers also backed the idea of a digital tax. Josh Turner, founder of Stand4Socks, said: ‘Although we are a mainly online business, we do sell offline at popup shops. If there were a tax for online shops it would make a stronger case for us to focus more on the high street and in the future probably open our own stores.’
Retailers pay about a quarter of England and Wales’s £25billion-ayear business rates bill. Paphitis said: ‘I’ve seen calculations which show that with a small amount of sales tax we could reduce the rates bill for retail quite tremendously and keep the Treasury happy.
‘It would also mean we could keep thet social fabric of our high streets anda town centres together – which so many politicians talk about as being important. But their actions are not matching the talk.’
Amazon will see the total business rates bill for its nine main distribution centres in England and Wales cut by £148,000 to £11.3million a year, according to rating specialist CVS, despite posting annual sales in excess of £6billion. Other online groups, including Asos, AO and Shop Direct, which owns Very, have all seen bills drop by 2 per cent on their warehouses. The cut is paid for by increases in areas where property values have soared to keep the overall total the same.
The Mail on Sunday has long campaigned for business rates reform. Last week, we revealed the Government planned to scrap a block on the appeals process, which would have forced firms to pay bills even if they were wrong. The Government announced a U-turn on that policy soon after Wednesday’s Budget.
John Webber, head of ratings at property advisor Colliers, said: ‘It’s a victory. I can only imagine some HMRC mandarin thought this was a great idea. However, if the business rates system was more transparent in the first place people wouldn’t have to put in so many appeals. At the moment we are still rearranging the deck chairs. The whole thing needs change.’