Insight

Can an online sales tax replace business rates?

As the Government lays the groundwork for its latest business rates review, the idea of an online shopping tax is circulating as a possibility.

As part of the autumn review the Treasury is looking for alternatives to the existing business rates system and some campaigners are pushing hard for a new tax which focuses on online retailers rather than physical stores. But that rather misses the point. Whilst there are valid criticisms at the level of business rates as a tax, the system itself is not causing the demise of the High Street, that demise is caused by us all with our click and deliver purchases. There is structural change underway in the retail sector and arguably, Covid-19 has sped up the effects of that change.

If you look at the immediate context of Covid-19, the recent call for evidence points out that online shopping has increased as a result of the pandemic but says it’s too soon to say what the long term impact this might have on commercial property. It suggests that alternative taxes might either replace or complement the existing business rates system. In other words we all have to pay in some form or other to fund local government.

Any new tax regime couldn’t be introduced overnight and an online tax wouldn’t be enough in itself to replace the estimated £29bn in business rates that the Government collects every year. But it could be employed as a new tax that is used to reduce the rate at which business rates are charged generally.

Responses to the online sales tax proposal have to be submitted by October 31, with the Government wanting views about existing reliefs and the business rates multiplier by September 18. Responses can be submitted online or via email to BusinessRatesReview2020@hmtreasury.gov.uk.

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