Rishi Sunak is stepping up plans for an online sales tax to level the playing field between tech behemoths and high street retailers after delaying an overhaul of business rates.
Treasury officials have accelerated work on a new e-commerce tax in the past few weeks and are scoping out details of a potential levy, including what goods and services will be covered, sources told The Daily Telegraph.
Whitehall insiders said that a so-called “Amazon tax” under a wider business rates shake-up is “clearly the direction of travel” being considered by the Chancellor, but that final decisions will be pushed out beyond the upcoming Budget.
The move is likely to prove controversial and comes after the US President Joe Biden put together a global deal on how to tax Big Tech.
At a glance | online sales tax
A Government source said: “The plans are at a very rudimentary stage but clearly the direction of travel has been set now.”
An online sales tax was one of multiple options mentioned in a long-awaited review on overhauling business rates.
However, The Telegraph reported last week that the business rates review due to be revealed at the Budget will only include minor tweaks rather than a major rethink as ministers need more time to work on their proposals. Government sources said the Treasury is now honing in on an online sales tax, adding that any major announcement is likely to be pushed back into the spring.
Another source said a consultation is likely to be put forward before any major tax increase on internet companies. The idea of an online sales tax was first mooted by Philip Hammond when he was Chancellor, and a previously suggested 2pc rate would generate around £2bn.
Business rates generated almost £30bn a year for the Exchequer before Covid, but bricks-and-mortar retailers have complained that it gives online competitors an unfair advantage. However, there are fears that a tax on online sales would also punish physical retailers moving their businesses away from declining high streets.
Business rates paid by retailers
There are also diplomatic risks given Amazon’s central role in e-commerce.
The Chancellor delayed a decision on an online sales tax earlier this year as he was said to be waiting for the outcome of the OECD’s global tax talks amid fears of inflaming tensions with the Biden administration.
A deal was agreed this month to ensure US tech giants pay more tax in the country where revenue is generated, shifting the focus of digital taxation away from the likes of Facebook and Google to online sales of products.
Amber Mace at EY said: “The Government may well need more time to conquer the challenge of designing an online sales tax that doesn’t just add further burdens onto the sector and deter investment in e-commerce.”
She said businesses want a new tax that “more closely balances the playing field between physical and online retailers”.
A Treasury spokesman said: “Our review into business rates will conclude this autumn.”