By Andrew Banks, former head of e-commerce for Matalan and now the CEO of Venture Forge, an online marketplace specialist. He is also Director of premium cycling skincare brand VeloSkin, which is an Amazon best seller.
In the face of a shifting balance from offline to online sales, the consideration of an ‘Amazon tax’ has been around for some time and may seem like a logical step, but it is highly unlikely to redress the balance back to the high street. It is also more akin to a punishment for the successful and forward-thinking businesses who have simply followed where consumers have gone – online.
Whilst the UK Government and local authorities face declining tax revenues from physical retail in a post-covid world, any attempts to reverse the trends in consumer behaviour are likely to fail.
An online sales tax seems to be the obvious way of addressing the tax revenue shortfalls and shifting consumers back to the high street. But what this does not factor in is that consumers choose to buy online for a plethora of reasons – including choice, convenience and speed as well as price. Most high street retailers now price match the big online players, so price has become even less of a factor in choosing to buy online over the high street.
Simply taxing the online retailers more to try to push people back to the high street ignores the reason why consumers are continuing to prefer shopping online and does not address the underlying challenges of physical retail.
What effect will the amazon tax have on online-only retailers?
While there is a clear case for ensuring all retailers pay their fair and moral share of tax to ensure the UK benefits from the sales generated within the country, any increase in online taxation is only likely to have one effect – increased prices for consumers.
The belief that online retailers have lower cost bases and therefore bigger margins to play with is a myth, and retailers will not be able to swallow any increase in taxation.
This has occurred before when the Digital Services Tax came into play in the UK – it simply resulted in Amazon passing these costs directly on to the sellers that sell through their platform, by charging them higher seller fees. We need to remember that many of these businesses are small independent retailers themselves, operating on thin margins and often also with physical shop presences and the corresponding overheads.
Particularly throughout Covid, smaller retailers have turned online to save their businesses, grabbing any trade they could to survive. Many have now gone on to become successful online retailers, and any increase in taxation would be likely to hit them hard.
The impact on multichannel retailers.
Multi-channel retailers are also likely to be hit hard by such a sales tax. Historically, their stores will have been a significant cash profit driver, with online being a smaller part of their business.
In a post-Covid world, overall sales are down, and the balance has shifted much more heavily to online – often at a lower margin for many of the major multichannel retailers due to increased costs of delivery, service and returns.
To now layer in an additional tax on to the only channel in their business that is likely to be showing growth feels like a penalty for adapting and running a good business, which will be detrimental in the long run.
The impact on the high street.
In theory, taxing online retailers should put more consumers back on the high street and benefit bricks and mortar retailers.
However, this is not going to happen in a significant enough way to have a material impact.
Pre-Covid, consumers were shopping online more and more, and the trend was continuing to grow. Retail footfall was declining at around 5% year on year.
Post- Covid, Pandora’s Box has been fully opened. Those who never shopped online have had to and the speed of transition to online shopping accelerated by four to five years.
Even if an online sales tax could reverse half of that progress, we are still left with a high street that was already struggling pre-Covid, that is now two years further forward.
If you look at why Topshop, Debenhams etc have failed, it is not because online businesses had an unfair financial advantage; it’s because online businesses created themselves to take advantage of the consumer appetite for online shopping. They did the right thing at the right time.
In a post-Covid world, the high street needs to reinvent itself and create something that consumers want, rather than be artificially propped up with a taxation system.
Is the ‘Amazon’ tax fair?
Whilst almost everyone is likely to agree that all business should pay their fair share of taxation, artificially taxing successful online businesses that have worked hard, employed people and, to some extent, propped the UK economy up during Covid is highly unfair and unlikely to achieve the desired outcome of saving the high street.
It may generate a good amount of revenue for HMRC in the short run, which could then be pumped back into rejuvenating town centres and support for retailers, but these are artificial mechanisms to try and create an economic situation that goes against what consumer behaviour is asking for.
To penalise businesses for building something successful feels wrong and unfair. If there are taxation challenges with these big corporations they need to be addressed, but not through a taxation system that taxes all online sales.
Would the “Amazon tax” effect the UK’s standing as an economic centre?
Any such tax would send a signal to the world that, as a country, we don’t reward or incentivise entrepreneurs that take the risk to build big, successful and forward-thinking businesses that go on to employ many hundreds of thousands of people.
Online did not kill the high street and neither did Covid. It was already changing, with many retailers failing to adapt – Covid simply accelerated this.