Focus: Could an Amazon tax really save British retail?

Tesco, Britain’s biggest supermarket chain, is now the dominant player in the online grocery arena too. Yet its boss Dave Lewis has been calling for a 2% tax on products sold on the internet to help ease some of the pressure retailers are facing on the High Street.

“Rates have become a rising tax on investment while profit taxes have fallen,” Lewis told an audience at a business conference last month. “It’s a drag on growth, it’s a drag on competitiveness and [there is] no longer a balance between taxation and sales. We need an online sales levy so that the burden of tax can follow the sales.”

He has a point. Retail accounts for 5% of the economy, yet pays 10% of all business taxes and a staggering 25% of business rates, mainly charged on physical shops, according to the British Retail Consortium (BRC). This is contributing to the rising number of store closures and discouraging new businesses from taking over empty stores, the property industry argues.

The BRC this month called for the government to set up an independent review of business taxation that goes beyond Chancellor Philip Hammond’s existing plans to introduce a digital tax on the sales tech giants generate from April 2020.

The chatter among retail bosses is that it will be a while before policy wonks in Westminster come up with meaningful changes after consultations. Hammond could also face a showdown with the EU and the 36 countries in the Organisation for Economic Co-operation and Development (OECD), which have been working on their own digital tax Britain doesn’t plan to be part of.

How VAT is levied might be part of the answer, similar to the “eat in or take away” price difference in chains like Pret. For shopping, there could be a similarly two-tiered VAT system where, for example, you would pay VAT at 15% if you shop in a physical store and 22.5% if you buy online. “This would be both an incentive for people to shop in person — and also for online retailers to lease physical stores in and around London. We’re already seeing a growing trend for the latter and this VAT differential could accelerate that,” says Paul Souber, co-head of EMEA retail at agent Colliers International.

Retail juggernaut Amazon has faced much of the public’s anger over Britain’s ailing High Streets.

The company has paid only £61.7 million corporation tax in Britain in 20 years while notching up £7 billion in turnover for Amazon UK Services, a part of its UK business. But its tax bill on its profits, a much smaller figure than revenues, is less than some major UK retailers pay in just one year. Amazon’s camp argue it is merely adhering to the system and it does pay rates — on its distribution centres and handful of Whole Foods shops. It paid £63 million in business rates last year, more than "many well-known High Street retailers", it says on its website. It declined to say how much pays in corporation tax in total.

Lewis reckons that a 2% tax would raise £1.5 billion and fund a business rate cut of 20%, levelling the playing field between bricks-and-mortar and online, while Sports Direct’s Mike Ashley believes a whopping 20% tax on online sales is needed. Asos, despite being a web-only fashion retailer, echoes Lewis’s views, saying that the Government should overhaul business rates and corporation tax.

But not everybody agrees. Such a blunt tool to tax all online retailers could stifle growth and wouldn’t necessarily encourage consumers to use the High Street more.

“Changing consumer trends and shopping habits have really transformed the traditional retail environment but should we be punishing online stores for being victims of their own success? Shouldn’t it be up to the consumer to determine where and how they decide to shop?” says Souber.

It could also lead to passing on extra costs to the shopper, as a rise in tax would likely lead to a rise in prices.

To this, Tesco’s Lewis said: “I hear people talk that the levy will be a tax on the future but I will also argue that business rates are killing the present, damaging the economy… don’t doubt the fact that retailers are having to pass on the costs of increased rates in the prices that shoppers are paying today.”

For now, retailers will have to do the heavy lifting and have a more creative approach as to how they can carry the costs while still attracting shoppers.