Government consults on online sales tax as measure to address tax imbalance

The UK government has Friday published an early-stage consultation, exploring the arguments for and against an online sales tax.

The consultation follows concerns reported by businesses of a potential tax imbalance between in-store retailers and online, and will look at potential designs and impacts on consumers and businesses of implementing such a tax.

The government has, however, clarified that no decisions have been made on whether to go ahead with an online sales tax.

“We want to see thriving high streets and a fair economy as we move forward from the pandemic, which is why our business rates review cut the burden by £7 billion for businesses, and committed to look at an online sales Tax – given the imbalance identified by some between online and in-store retailers,” Lucy Frazer, Financial Secretary to the Treasury, said.

“Whilst we’ve made no decision on whether to introduce such a tax, it’s right that, given the growing consumer trend to shop online, we work with stakeholders to assess the appropriate taxation of the retail sector.”

The consultation was committed to at Autumn Budget as part of the government’s conclusion to its review of business rates, where stakeholders, including some of the UK’s most well-known high street businesses, called for an online sales tax to help rebalance the tax system through funding a reduction in business rates for the retail sector.

As part of the three-month consultation stakeholders will be asked for their views on the challenges on the design of an online sales tax, including which products and services would be in scope and whether it would be a flat-fee tax based on the number of transactions or deliveries, or a revenue-based tax.

The consultation, which will run will run until 20 May, delves into what effect an online sales tax would have on consumers and businesses alike, which will also be a key determining factor in policy decisions.

The government noted that, if implemented, revenue from such a tax would be used to fund reductions in business rates for retailers with properties in England and fund the block grants of the devolved administrations in the usual way.