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Could a two tier VAT system save the high street?

  1. VAT
    Francois Badenhorst

    Francois Badenhorst Business Editor, UKBF & AWEB Staff Member

    91 18
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    The high street’s troubles are well documented at this point. Stores have closed, jobs have been lost and businesses have gone bust, the decline seems terminal. But according to one group, a two-tier tax system could stop the bleeding.

    Colliers International, one of the UK's largest property consultancies, wants a two tier VAT system. Under the proposal, shoppers would pay tax at 15% in a brick-and-mortar store and 22.5 % for online purchases.

    The suggestion isn’t entirely from left field. The chancellor Philip Hammond recently told Sky News he’s considering a special retail tax - dubbed an ‘Amazon tax’ - on online retailers.

    "We want to ensure that taxation is fair between businesses doing business the traditional way and those doing business online," he said in the Sky News interview. "That requires us to renegotiate international tax treaties because many of the big online businesses are international companies.”

    Adapting the VAT system could be a powerful vehicle to achieve this, according to Paul Souber, Colliers’ head of London retail. It would present a strong incentive for shoppers to return to the high street and online retailers to lease physical stores.

    But Souber and Colliers’ plan isn’t as simple as it sounds, according to David Wilson and Andrew Hubbard of RSM. “Artificial distinctions to address a particular policy agenda generally don’t work,” they wrote.

    “The very ethos of VAT is that it is charged on the ‘value added’ at each stage of the production and distribution process, including retail sale, and affords businesses in the supply chain the right to deduct the VAT paid at an earlier stage of that process from the VAT payable on the onward supply.”

    VAT is structured, ultimately, to be paid by the end consumer. “If a higher VAT rate applies to online retail sales than to sales by high street retailers then, rather than levelling the playing field between the two, the additional VAT burden would result in increased costs for the consumer.

    “As VAT would not appear to be either a legally competent or administratively practicable means of levelling the playing field between the high street and online retailers, and as it's highly unlikely that the Chancellor will interfere with the business rates regime, the focus will once again fall on taxing the value generated by online businesses.

    “Whether that will take the form of an online sales tax should become clear on Budget day.”

    As we’ve covered before, simply blaming online retail for the high street’s woes is simplistic. Inertia and a failure to address the drag of legacy real estate has created its share of the trouble, too. To paraphrase, the retail analyst Richard Hyman: an ‘Amazon Tax’ might dull the pain - but will it create better retailers?

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  2. doctorzogg

    doctorzogg UKBF Newcomer Free Member

    2 1
    This seems an interesting proposal. I was also musing as to whether a delivery tax could be levied. It could work by levying a charge, say £2 per delivery. Consumers could consolidate and reduce the cost of delivery, and this may also remove Yodelling DPD vans from the road.
     
    Posted: Sep 14, 2018 By: doctorzogg Member since: Oct 14, 2015
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  3. wxpal

    wxpal UKBF Newcomer Free Member

    0 2
    No, this is a bad idea on several counts. If the issue is people buying online rather than locally then to some extent price is one of the factors, but only one and arguably not a major one. People prefer to shop online for many other reasons:

    Convenience: You can shop anytime, which is obviously a plus in our increasingly busy lives. And I've not got to waste time and energy visiting my local high street, finding somewhere to park, only to discover that they don't have what I want anyway.

    Choice: There's simply a much greater choice of items online than I'm ever going to find locally (unless I go shopping in a major city and maybe not even then for more specialist items).

    Availability: If I need something/whatever in a certain fitting or quantity or eg clothes in plus sizes or short/long legs or whatever then chances of finding that on the high street are minimal.

    Specialist items: There are many online businesses that thrive or at least survive these days because they offer specialist items and advice/experience to back up their sales. My business sells weather instrumentation for example and it would never make it on a high street in a month of Sundays - there's never going to be enough local business to support it. But aggregating that business across the UK is enough to support eg 2 or 3 specialist online dealers in my line of trade.

    So stop thinking that the issue is price (or least price alone) or eg business rates alone (I suspect that rents are typically much more important than rates). The main factor IMO is that consumers' behaviour has changed - they want convenience, choice and availability as well as good pricing. There are things that could be done for the high street, but it's got to start from an appreciation that the High St of the past is not going to return in the same guise.

    NB None of this means that Amazon (and others) should be allowed to get away without paying a proportionate level of tax (though I dare say that they do pay quite a lot of VAT, NI etc). But new ways of doing business like Amazon may need new forms of taxation and not just an artificial tweak to VAT. And make sure that new taxes don't also hit small businesses like mine which would go out of existence if they were subjected to a tax regime intended to hit Amazon.
     
    Last edited: Sep 16, 2018
    Posted: Sep 16, 2018 By: wxpal Member since: Sep 16, 2018
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    Pembroke99 and locutus like this.
  4. marcus_bond

    marcus_bond UKBF Newcomer Free Member

    21 7
    The EU discussions were about going after the enormous companies that were avoiding paying tax. In any case, before we do start levying different rates of VAT, can we just force Amazon and other companies who accept payments on behalf of third party sellers to just collect the VAT that is *already owed* on behalf of the sellers. It's nutty, I'm still buying stuff from Amazon and it's arriving two weeks later with Chinese stickers, and no VAT collected. HMRC is still doing barely anything to enforce VAT collection. The USA seems to be preparing to make Amazon collect VAT on behalf of it's sellers where goods are actually sold, we should definitely do the same. Something like 1.5 billion pa estimated by HMRC still not being collected last time I looked.
     
    Last edited: Sep 24, 2018
    Posted: Sep 24, 2018 By: marcus_bond Member since: Nov 12, 2017
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  5. CliveD

    CliveD UKBF Newcomer Free Member

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    Is it a problem of "selling through bricks and mortar costing more" or the small amount of corporation tax that multi-national companies appear to pay in each country in which they operate as a subsidiary, possibly by moving their profits around to avoid paying tax?

    Like wxpal I also would be also hit unfairly by an online tax as I sell a subscription to a professional guide which my company creates which is only sold online.
     
    Last edited: Sep 25, 2018
    Posted: Sep 25, 2018 By: CliveD Member since: Jan 10, 2013
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  6. Karimbo

    Karimbo UKBF Ace Free Member

    1,650 162
    far too complicated, what about service business where physical goods are not transferred, what about businesses that have both an online component and in store component which they fulfill from the same location.
     
    Posted: Sep 27, 2018 By: Karimbo Member since: Nov 5, 2011
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  7. Highland Spring

    Highland Spring UKBF Regular Full Member

    137 9
    Sadly I think the high streets are in decline and no amount of VAT changes or other "tweaks" will change the direction of travel. They enjoyed a near monopoly of people's purchases with the biggest stores in the prime locations having the strongest advantage, with the internet that is changing forever. Goods can be shipped to your door next or same day from remote locations and the likes of Amazon are now the ones with the advantage.

    There will remain a role for stores as people like to see and touch products before buying, but even that may be challenged if 3D technology improves.

    So raising taxes on the Internet giants is a good idea but trying to support a declining industry is only throwing good money after bad.
     
    Posted: Nov 10, 2018 By: Highland Spring Member since: Jan 20, 2018
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