We have been hearing about the proposed ‘Amazon tax’ for some time now. For many, it may seem like a logical step, but we believe it’s more of a punishment to the successful and forward-thinking businesses who have moved to where many consumers are nowadays – online.
Whilst the UK Government and local authorities face declining tax revenues from physical retail spaces in a post-Covid world, any attempt to reverse the current trends in consumer retail behaviour are likely to fail.
While keeping that in mind, there is a clear case for ensuring all retailers pay their fair and moral share of tax to ensure the UK can benefit from the sales generated within the country.
Many people often see an online sales tax being a good way of addressing not only tax revenue shortfalls, but also an attempt to increase online prices and shift consumers back to the high street.
As an Amazon agency, we believe it is important to address the different reasons why consumers choose to buy online – the main reasons include choice, convenience and speed.
Most high street retailers are trying to pick up online sales by price matching the big online players. However, price has become less of a factor in choosing to buy online over the high street. Therefore, simply taxing the online retailers more to try and push consumers back to the high street ignores both the reality of why consumers prefer to shop online, and the underlying challenges of physical retail.
What impact would an Amazon tax have on online-only retailers?
As an Amazon agency, we predict that any increase in online taxation is likely to have only 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.
When the Digital Services Tax was introduced in the UK, Amazon passed these costs directly on to the sellers, leading to increased seller fees. Many of these businesses are small independent retailers themselves, operating on thin margins.
Throughout Covid, smaller retailers turned online to save their businesses, basically seizing any opportunity to trade so they could financially survive. As a result of this, many have now become successful online retailers, and an increase in taxation is likely to hit them hard. Any increase in taxation can only be negative for online retailers.
What impact would this have on multichannel retailers?
Multi-channel retailers are also likely to be hit hard by 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 additional tax onto the only channel in their business that is likely to be showing growth feels like a penalty for adapting and running a good business. And believe will this will be detrimental in the long run.
What impact would this have on retailers that are only or mostly bricks-and-mortar?
In theory, taxing online retailers should put more consumers back on the high street and benefit bricks and mortar retailers. However, in reality, 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. One year into the pandemic and Pandora’s Box has been fully opened. Those who never shopped online have had to and the speed of transition to online shopping has accelerated by 4 to 5 years.
Even if an online sales tax could reverse half of that progress, we’re still left with a high street that was struggling pre-covid that is now two years further forward.
If you look at why Topshop, Debenhams etc… have failed, it’s not because online businesses had an unfair financial advantage, it’s because online businesses took advantage of the consumer appetite for online shopping.
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 tax proposal fair?
Most people will agree that business should pay their fair share of tax. However, 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.
What would the “Amazon tax” mean for the UK standing as an economic centre?
We believe that 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.
It is important to realise that online did not kill the high street and neither did Covid. It was already changing, with many retailers failing to adapt – Covid has simply accelerated this.
To find out how Venture Forge can help your business achieve significant growth on Amazon contact us at [email protected], through our website, or call us on 01422728435.
