Online sales tax risks shifting tax burden from landlords to shoppers

Commenting on the Government’s launch this afternoon of a consultation on an online sales tax the Chartered Institute of Taxation (CIOT) has said that the effect of such a tax could be to shift the tax burden away from commercial landlords and onto shoppers.

This is because, if implemented, the revenue from an online sales tax would be used to reduce business rates for retailers. (NB. This is the case for retailers with properties in England. The online sales tax would be UK-wide and for the devolved administrations appropriate shares of the proceeds would be added to their block grants in the usual way.)

The Government has emphasised that it has not decided whether to proceed with an online sales tax.

John Cullinane, CIOT Director of Public Policy, commented:

“We welcome the fact that the Government is consulting on this as opposed to simply going ahead with a new online sales tax, especially given its impact potentially on millions of people.

“But we would like the Government to be clearer about the objectives of the online sales tax. Is the Government content that while evidence shows that business rates today are ultimately mostly borne by landlords, the online sales tax would be very largely borne by consumers in higher prices?

“The debate over an online sales tax is being driven by two things – the burden of business rates and a gradual shift in commerce from face to face to online transactions. Underlying this consultation is the question of to what extent the first of these is responsible for the second, or for broader problems on the high street, as compared to shifting customer preferences for the convenience of online.

“This would be the 22^nd new tax of the 21^st century, if the Government goes ahead with it. It is not exactly a triumph for tax simplification that so far this century we have added 21 new taxes to the statute book without getting rid of a single one!

“Could something be done with existing taxes? An increase to VAT would also be borne by the consumer, just as an online sales tax would be, but it would be less burdensome in the sense one tax is simpler than two. It would also be less distortive of customer preferences between online and physical purchases.

“If the Government ultimately goes ahead with an online sales tax, there will be many complexities about the design that will need agreeing, involving potentially arbitrary decisions on the items that are taxable or not and the status of streaming services, ‘click-and-collect’ and online reservations for face to face services and activities.”