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Is an online sales tax feasible?

Sports Direct’s Mike Ashley has called for a 20% online sales tax to help boost the high street, but his suggestion has been met with scepticism by industry experts.

Speaking on 3 December at the housing, communities and local government committee on the outlook for the high street in 2030, Ashley proposed introducing a 20% tax on businesses whose online sales account for more than 20% of their revenue. He also said business rates should be paused for five years and retailers should be “forced” to invest that money into the specific stores that benefit from the absence of rates.

Sports Direct Group has a £400m online business and would be affected by any online sales tax introduced.

“I’m sitting here voting to punish Sports Direct Group,” said Ashley. “That is not very normal, but if the minority high street can now be saved it makes business sense because in 2030 I can still have a fantastic business.

“The high street won’t make 2030. It won’t be there unless you do something really radical.”

However, ecommerce experts have told Drapers the proposal does not take into account the changing demands of consumers.

“A tax like this doesn’t solve the fundamental issue,” said Rachel Arthur, chief innovation officer at consultancy TheCurrent. “The consumer has changed. I don’t think it incentivises investing. We are going to shift to a model where about 50% of sales are online.”

Andy Mulcahy, strategy and insight director at online retail association IMRG, agreed: “It’s a simple solution to a complex problem. This is being suggested because the high street is under pressure. To think that if you bring in a tax you’re going to force people to go to the high street is ridiculous. Online offers convenience and choice – you’re not going to reverse that.”

Martin Newman, founder and chief executive of ecommerce consultancy Practicology, said the solution to save the high street lies elsewhere: “Why penalise customers? This conversation should be about how do we encourage independent businesses and artisan brands and pop-ups into the empty spaces to make the high street more attractive. The high street accounts for 80% of sales and click and collect is driving traffic to stores, so how did we work out that online is killing the high street?”

There are also fears that penalising ecommerce players could make the UK less competitive on the global stage.

Daniel Bobroff, founder of creative technology agency Coded Futures, said: “We’re a small island and I’m aware that, with Brexit on the horizon, we need to remain at the vanguard of retail and innovation as we have been for the last century. Comments like Mike Ashley’s add a very negative dimension to that. We’re reaching a space where average retailing isn’t surviving, and if Mike Ashley wants to solve the problems with the high street, maybe he should look a bit closer to home.

“Digital will be a huge source of innovation and jobs in our future, and we shouldn’t suppress that. If we introduce this tax we’ll make ourselves vulnerable to global competition.”

The chief customer officer of one retailer shared concerns that an online sales tax could damage medium-sized businesses that are already struggling with tough trade: “Any potential changes need to make sure they affect the big US companies. It’s difficult to create a tax law that doesn’t hurt small-to-medium enterprises that are creating great businesses online. It’s very easy to construct a bad law in a panic.

“We need to mobilise all parts of the equation with retailers, landlords, investors, local and national government, otherwise we’ll end up with an outcome that no one wants.”

In October, chancellor Philip Hammond announced a digital services tax (DST) targeting technology companies with revenues of more than £500m that operate in the UK but have evaded taxes. The DST is scheduled to come into place in April 2020.

PwC’s UK head of digital tax, Alenka Turnsek, said the changes could deter international investors: “We must ensure that the introduction of the DST doesn’t impact on the attractiveness of the UK as an investment and innovation hub. Adverse tax measures could reduce attractiveness of a country to foreign investors.”

Ashley’s proposal may be too blunt an instrument to solve the ongoing problem of what to do with the high street, but he is right that action is required.

Readers' comments (3)

  • Blacksmiths voted for a tax on tyres but...

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  • Martin Ailion

    I don't believe taxing online retailers is the answer. I believe that the High Street needs to made more attractive to independents and specialist retailers by way of tackling obscene rents and business rates levels. Give the retailer a more level playing field.

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  • darren hoggett

    While Ashley is right most of the time in my humble opinion, an Online Tax is pointless as it would not achieve the impossible of - 'Saving' (sic) the High Street.

    Who would it apply to? Pure players or all Internet sales? Many Indies for example are significantly or predominantly Internet Sales based anyway, so it would make them almost unviable and negate all their hard work of making their online side of the business successful.

    City Centres for the most part are not convenient places to shop. That is often overlooked and the kids aren't stupid. City Councils have made them over pedestrian friendly with a move towards Park & Ride, but that is of no use to the serious shopper or the stores themselves. It is too late for them to reverse these decisions to have a positive impact.

    It is all about convenience and an Online Sales Tax will do nothing to change shopping habits, just add to inflation.

    Retailers large and small need to look at themselves very hard. Footfall will continue to decrease and decrease and decrease. With that in mind and if you have a successful online business, then why all the fuss about the 'High Street' and the perpetual moans about rent and/or rates? There is an easy answer - Move.

    It cannot be easy for Drapers to be reporting on what is a dying Industry. At least in its present format. Yes there will still be shops in the future, but they will be much more limited, certainly more niche and in less traditional locations, though there will always be exceptions. That is the only possible way forward, as staying in prime locations and wondering where the shoppers have gone will only head to financial ruin for many.

    Tough times need tough decisions and staying put (for most) is not one of them. Instead of trying the save the unsaveable, retail needs to look to the future to change to what works for them.

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