The UK government is under growing pressure to implement an online sales tax to address the unequal trading conditions faced by digital retailers and physical stores during the Covid-19 pandemic. Referred to as an ‘excessive profits tax’ or an ‘Amazon tax’, this potential tax is being considered as part of a business rates review that began after a consultation last year. Leaked emails have revealed that Treasury officials have summoned tech firms and retailers for a meeting to discuss the online sales tax. There is speculation that a 2% levy on all online purchases, which could generate £2 billion annually, may be introduced. The aim is for these funds to help cover a portion of the £300 billion cost of Covid-19 on the UK.

Government ministers believe that introducing an online sales tax would help rebalance spending patterns between online and physical shops, providing some relief to struggling high street stores. Official figures from 2020 showed a 46% increase in online spending compared to the previous year during lockdown periods when non-essential stores were closed. Online spending now accounts for approximately 30% of total retail sales in Britain, up from 20% just a year ago. Chancellor Rishi Sunak is reportedly supportive of the move, but it is expected to be announced in the autumn rather than during the budget on March 3rd.

The possibility of an additional tax on e-commerce companies has already had an impact on the stock market, with shares of Boohoo and Asos falling by nearly 5% and 3% respectively on the London Stock Exchange. While a Treasury spokesperson confirmed that they are considering responses to the business rates review, no final decision has been made.

Calls for an online sales tax have grown stronger following news that Amazon UK experienced a 51% increase in sales last year, reaching £19.4 billion, as lockdown restrictions forced people to shop online. Analysts have highlighted Amazon’s low tax payments compared to traditional retailers, with Amazon’s tax-to-sales ratio at just 0.37% compared to approximately 2.3% for traditional retailers.

Amazon did not directly comment on the reports of an online sales tax but emphasized their contributions to the UK economy. They stated that the company has invested over £23 billion in jobs and infrastructure in the UK since 2010 and contributed £1.1 billion in taxes in 2019, including £293 million in direct taxes and £854 million in indirect taxes.

However, business groups such as the British Retail Consortium (BRC) oppose the introduction of an online sales tax. They argue that it would disproportionately impact high street retailers that also have online operations, ultimately resulting in higher costs for consumers in an already fragile British economy. The BRC’s chief executive, Helen Dickinson, emphasized the need for fundamental reform of the business rates system to revive the high street and advised against introducing new taxes that could hinder economic recovery driven by consumer demand.

Useful links:
1. The Guardian: Rishi Sunak considering £2bn online sales tax to help UK high street
2. BBC News: Online sales tax ‘under consideration’ by Treasury