Digital Marketing

It won’t be Amazon paying the price of an online sales tax

We saw how futile it was attempting to insulate the British mining sector from cheaper imported natural gas and how this made the eventual reckoning all the more painful. To repeat that mistake by punishing online sellers for structuring their businesses and improving package logistics to offer lower consumer prices would be an act of folly.

Now some argue that an online sales tax is a necessary counterweight to “level the playing field” between online and in-store retailers, the latter of which are burdened more heavily by business rates.

Amazon reportedly paid a total of just £63m in business rates last year, critics say, “despite” sales of nearly £9bn. That rates bill is comparable to perhaps fewer than 10 shops in the West End, supposedly showing the scale of the tax burden Amazon “avoids.”

But such comparisons are facile. Amazon and others structure their businesses precisely to avoid the high fixed costs associated with inner-city rents and rates – a business practice, of course, afforded to all retailers. That online sellers have built tax-efficient out-of-town warehouses to store products to provide cheaper goods is a feature, not a bug, of retail competition.

Indeed, to pretend this business model is some unfair advantage requiring correction is akin to saying that we need an extra tax on e-books to reflect that they avoid the costs of printing. Or believing that energy produced by wind should be taxed more to compensate for its unfair advantage of not facing the safety costs associated with nuclear. Business rates may be a bad tax in need of reform, but that is a totally different issue.

In fact, an online sales tax will harm, not enhance, competition. Its advocates think they are striking out for the little guy against internet giants. But accounting for and managing an online sales tax will be much easier and less costly for Amazon than smaller online competitors, including, of course, high street stores, many of which have only recently made costly investments to expand their web footprint as footfall sinks.