Are West End retailers right to call for an Amazon sales tax?

The New West End Company, that represents businesses in London's premier shopping zone, has called for a 1 per cent sales tax to be levied on online retailers

Shoppers on Oxford Street (Getty)

Is it time for what you could call an “Amazon tax”?

The New West End Company, which represents more than 600 retailers, hoteliers, and landlords in London’s premier shopping area, has put forward a proposal for one.

It would work through the imposition of a 1 per cent sales tax, that would be levied on retailers that are “wholly or largely online”, through the VAT system.

The organisation thinks it could raise £5bn a year, and fund a 17.5 per cent cut to the business rates paid by more traditional town centre retailers, given the Treasury’s stated intention that any changes to that levy should be revenue neutral.

Bricks and mortar retailers have long groused that they get unfairly clobbered by the charge, which is calculated by reference to property values.

Businesses operating largely from big out of town warehouses, where those values are low, pay little. Those in the centre of London, well, as they say in America, you do the math.

The Company cites the example of M&S vs Amazon in 2017. The former shelled out £184m in business rates after having generated revenues of £9.6bn. The latter, which took in £7.3bn in the UK, paid just £14m. Amazon tells me that number doesn’t include all its UK businesses. But when I asked what the true figure was it refused to say. I’ll leave you to draw your own conclusions as to why.

Based on the information we have, there is a clear disparity.

There are, however, some very obvious problems with its propsosal to address it. For example, where do you draw the “largely” line so as not to penalise, say, a bricks and clicks retailer like John Lewis which contributes a lot via business rates.

And what if Amazon were to buy Morrisons, as some have suggested. It already owns a large traditional retailer in the US (Wholefoods), and could buy the former, with which it already has a partnership, with the small change in its back pocket.

Morrisons reported revenues of £17.2bn during the 2017/2018 year, most of which came via its stores. Its purchase would leave Amazon, surely the main driver of such a reform, as no longer a “largely online” business.

The Company has some ideas. You could, say, just tax the online bits. But then the administration could get very complex.

A better argument it puts forward is that the first thing people do with any proposed reform to the way people and businesses are taxed is to shoot holes in it. Let’s first, it says, establish the principle. Then we can work on those details.

You have to give it some credit for proposing a solution, rather than simply complaining about business rates being too high, which is what a lot of retailers do.

The biggest problem that solution faces is that the Treasury doesn’t seem minded to entertain any further reforms, notwithstanding the increasing concern about the issues it is creating among MPs.

It likes business rates because property based levies are easy to collect and hard to avoid. In a letter to Treasury Committee chair Nicky Morgan, Chancellor Philip Hammond stated that his priority as regards business levies is the reform of international business taxation with a view to preventing big companies like Amazon avoiding that. Rates can wait.

Here’s the thing: The Company’s proposal will not save M&S, or any other high street retailer, or Britain’s town centre shopping zones. It will not prevent the continuing move of shoppers online. The latter is just too attractive to those who are cash rich, time poor.

But, one of the uses being found for premises that once housed town centre shops is residential.

The council tax paid by the residents of shops that are converted into flats is inevitably going to be far less than the business rates paid by their previous tenants. If this trend serves to put enough of a dent in the overall yield, the issue might just creep up the Treasury’s priority list.