Could a two tier VAT system save the high street?
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 on AccountingWEB 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?