An overwhelming majority of retail landlords are in favour of a tax on digital sales, but some are sceptical that it will be used to lower the business rates burden.
A snap survey of landlords and retail clients by Colliers showed that 89% would be in favour of an online sales tax if it helped take the pressure off business rates.
The survey of 100 landlords and retailers was carried out following the government’s announcement of a consultation on an online sales tax policy on February 25th. The consultation – which can be found here – is due to close on 20 May.
Retail landlords and investors were overwhelmingly in favour of a tax, with 98% saying it was needed. Unsurprisingly, 100% of those retailers without an online presence said they support a tax. But interestingly, the tax was supported by 71% of retailers that did conduct online sales.
Level the field
John Webber, head of business rates at Colliers, said: “Our survey is part of our engagement with the consultation, which we will be replying to in full and which has been the subject of much debate with our retail clients.
“Although our survey is a snapshot of our retail clients, it does throw up some interesting pointers. It certainly seems there is overwhelming support to bring in some sort of online sales tax to try and level the playing field and take the full burden of business rates off bricks and mortar retailers.”
The survey also asked whether click and collect services should be subject to online sales tax. Here opinions were more divided, with 54% of those surveyed saying yes and 46% saying no. Taxing click and collect products was supported by a higher percentage of high street retailers – 57% – which also have an online presence than retail landlords at 55%.
Colliers also asked what products or size of retailer should be exempt from the online sales tax or pay a reduced amount. More than 70% of those surveyed put essential items into the bracket of exempt or a reduced tax, while two thirds said small retailers should be exempt or pay less. Just over half said web-based apps in stores and digital products should be exempt, or pay at a lower rate. However, only 31% said sale by email should be exempt or pay a reduced tax, with 69% saying these products should pay online sales tax.
Of the 11% not in favour of the new tax, some said that retailers need less taxation rather than more, while others were sceptical that the new tax would be used to reduce the business rates burden.
“Adding another bad tax doesn’t make things right,” said one commentator.
Others said it was unfair to penalise online providers since “online retailers aren’t responsible for discrepancies of high street retail”.
When asked for alternatives to an online sales tax, answers ranged from cutting the public sector hugely, increasing the VAT rate on all goods allowing them (the government) to reduce the rates for properties, introducing a delivery tax to the customer, and bringing in local business taxes on profit. Four respondents even mentioned maintaining the existing business rate system.
Change in habits
According to ONS, physical retailers pay a disproportionate amount of the business rates burden, paying between one quarter and a third (£7.26bn) of the total bill. This is despite the gross value-added from retail being less than 10%. It added that of the total rates bill paid by the retail sector in 2018/9, 94% was funded by the high street and only 6% by online retailers.
Webber added: “We are not saying an online sales tax will solve all the issues facing the high street, and there are several grey areas as our survey shows. However, given the increasing trend of buying online – a trend that was amplified during the pandemic and looks likely to continue – it is only right that we should try and rebalance the system and create a fairer playing field for all.
“But it is also essential any monies raised by an online tax is used directly to alleviate the high business rates burden and does not go into a government black hole. It should also not take the government’s attention away from what is essential – a fundamental reform of the current business rates system.”
According to Edge by Ascential’s Future Retail Disruption 2021-2022 report, some 32% of UK sales took place online in 2021, up from 29% in 2020. The report forecasts that UK shoppers will continue to shift online, with 38% of UK retail sales taking place online by 2026 – up from 21% in 2019.
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