Analysis: The etail tax proposal - who's leading the debate

At present, retail contributes about £7bn in business taxes but online players pay proportionately less due to their limited property portfolios. The British Retail Consortium is currently examining the idea of taxing online retailers, although details of what exactly would be taxed are vague.

Retailers against taxing online retailers

Speaking to Retail Week today, the BRC indicated it was not in favour of a tax, saying it sees “no point in penalising a strong part of the economy”.

The level of support for an online retail tax has forced etailers to defend their position. Pat Reeves and Rohan Blacker, the founders of Sofa.com, branded any such tax as a “barrier to entrepreneurship” in a joint letter to Danny Alexander, chief secretary to the Treasury, at the weekend. It went on: “Sofa.com, like all profitable online retailers, already pays significant corporation tax and VAT.

“We employ lots of people who pay national insurance, and all our shareholders also pay tax.

“It is the consumers who decide which retailers are successful – this is market forces at work. Taxing online retailers won’t change this, but most likely lead to a reduced consumer choice online.”

The pair added that online was not “some magical way of beating the high street,” adding “only the best businesses survive and as such, it’s absurd to imply that online retail has an ‘inherent advantage’ over traditional shops.”

Retailers calling for an etail tax

Tesco and Sainsbury’s have been particularly vocal in their support of the idea with Tesco chief executive Philip Clarke this month calling for a “level playing field” after he revealed the UK’s largest retailer had lost significant non-food sales to the online retailers. “I think we need a level playing field in tax although we in Tesco know that our fate is in our own hands,” he said.

Justin King, chief executive at Sainsbury’s, has gone further, hitting out at the government for creating an unfair burden and putting the high street at risk.

“The burden of taxation in the UK falls very heavily on bricks and mortar retailers versus internet only retailers,” he said last week. “In the long run if our high streets shrink as a result of an unlevel playing field on tax, the government tax take and most importantly local councils’ tax take will reduce considerably.”

His points are echoed by Ian Cheshire, chief executive of Kingfisher, who said last month: “We have a 19th century tax system for a 21st century retail economy. The increase in rent and rates is squeezing the high street, forcing the shuttering of shops and leading to higher vacancy rates. For each £1 of sales, the online guys pay a lot less tax and we need a strategic rethink.”

Cheshire, who is also BRC chairman, added: “We are putting together a working group to find a constructive way through this. We don’t want to be simply seen as whingeing. We’re not looking for a free pass, but a level playing field.”

Both King and Cheshire have met with Danny Alexander to discuss the issue in the past month.