UK online retail tax will also hit high street retailers, IMRG warns
Online retail association, IMRG, has spoken out against possible taxes on e-commerce sales and deliveries in the UK.
The Chancellor, Rishi Sunak, will reveal his Spring Budget today, with the Treasury said to be weighing changes to shift the balance between spending online and in physical shops.
Last month, Asos, boohoo, Gymshark, The Hut Group, Ocado Group and AO World launched a new trade body called the UK Digital Business Association (UKDBA).
This came amid heated debate around tax and business rates and the acceleration of e-commerce across all demographics during the coronavirus outbreak.
“An online tax is also a tax on high street retailers”
And now Justin Opie, MD, and Andy Mulcahy, Strategy and Insight Director, IMRG, have weighed into the debate.
In an online statement, they acknowledged that the tax system could perhaps do with an overall review, in recognition of how business structures have changed.
But they stressed that the focus on online retailers feels too narrow at present.
There are a number of issues to consider, they argued.
“If the intention is to force customers back to physical stores by making online more expensive, firstly it will not achieve that goal.”
“There are actually myriad reasons why people choose to shop online over physical outlets – the choice, convenience, availability and accessibility of doing so – any genuine solution has to acknowledge that as part of a more fundamental reappraisal.”
Then there is the issue of targeting.
“Criticism of online retailers tends to focus on a handful of tech giants, but the overwhelming majority of online sellers are small organisations, sometimes trading out of their bedrooms,” Opie and Mulcahy commented.
“Some huge organisations may have teams of people with the ability to structure their tax affairs in a way that can limit their tax liabilities; small sellers do not, so a tax might end up being applied very unfairly in that respect.”
“Furthermore, many high street stores also sell online and it is these retailers (the ‘multi-channel’ ones) who have seen the highest growth through their online channels during the pandemic (up 55% on average in 2020, vs just 9% for the online-only retailers).”
“An online tax is also a tax on high street retailers.”
The Digital Services Tax (DST)
This 2% levy was introduced last April.
According to the IMRG, In the majority of cases, the tax burden is quickly passed on to the customer.
Furthermore, there is a major avoidance risk linked with merchants based overseas, with UK shoppers ever more comfortable buying online from international merchants.
As for the issue of costs, online retailers may be able to store their stock in out-of-town locations, but they still have to pay a delivery charge on every parcel.
25% of it comes back on average too, meaning that returns and processing costs are very significant in some instances. Trading online already entails many such costs.
And last but not least, there’s the idea of a ‘green tax’ on online deliveries.
Opie and Mulcahy concluded: “This is not an area that requires stimulation through taxation, as it is already a major point of focus for retailers and delivery operators.”
“Pressure from customers is making sustainability a point of competition; those who operate with low environmental footprints, in a cost-effective manner from the customer perspective, will be far more attractive options for those customers.”
