Online retailers 'could be subject to extra tax'

Online retailers have reacted angrily to suggestions that they should be subjected to a new tax.

A group of retailers, including Ocado and Net A Porter, has written to the Chancellor insisting that any new tax on online sales would be “a nonsense”. The letter comes in response to a speech made last month by Justin King, in which the Sainsbury’s head called on the government to take action over what he says is an “unlevel playing field”. “The burden of taxation in the UK falls very heavily on bricks-and-mortar retailers versus internet only retailers,” Mr King said. “For every pound that we have saved [as a result of corporation tax cuts] we have paid around £2.50 extra in other taxes, primarily business rates. If the tax burden falls ever more heavily on those businesses that have real presence that is something that has to be addressed.” Online retailers have responded angrily to the suggestion, claiming: “Just because the online business model does not require as much property does not mean that other areas should be taxed more heavily.”

The letter continues: “An online tax would kill entrepreneurial spirit by making it harder for small retailers to get started. It would also have a detrimental effect on the supporting industries in technology, manufacturing, logistics and marketing which have been key partners in the growth of online retail. In addition many online companies are exporting to Europe and beyond, which can only be achieved successfully if there is a sound base at home. At a time when SMEs in these sectors are attempting to deliver innovation, growth and jobs they should not be choked off by the unintended consequences of an unfair tax.

“It is consumers that are driving the rise in online retail, both with online-only retailers and those with bricks and mortar stores and it is consumers that will be hit the hardest, particularly the poorest. The idea is vague and ill thought-out. Does it include just those retailers which operate online-only, or those with stores too? Should online travel agents be wary? Could it also capture online financial services providers? There is no logic to penalising companies that provide consumers the convenience, efficiency and value online shopping offers.

“Online is a rare and precious success story for the UK and one that we should take pride in. We support our high street counterparts in their call for lower business rates, but hitting online businesses by replacing lost revenue with this type of tax will hamper growth, slow the economy, impact jobs and reduce investment whilst not achieving a significant uplift for the Treasury.”

The government is yet to respond to Mr King’s calls.