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Government launches online sales tax public consultation

The Government has opened a public consultation into a new online sales tax (OST) to “rebalance” the taxation of online and in-store retail businesses.

The Treasury published its consultation on 25 February 2022, seeking answers from stakeholders on 40 questions about how an OTS should work.

If implemented, the Government would use an OST to reduce the business rates of retailers with properties in England and put additional funds into the block grants of the devolved administrations.

Supporters of an OST say in-store retailers pay a disproportionate share of business rates, making brick-and-mortar businesses less competitive.

However, critics say an OST would be a misplaced tool to help high street businesses, as the convenience of online shopping may partly explain the struggles felt by in-store retailers.

Nevertheless, the Government has been focused on helping retailers with their business rates, having announced a range of relief in Autumn Budget 2021.

The Treasury did not flesh out any specific plans rates or thresholds, saying they must define the scope and design of an online tax first.

Mike Cherry, national chairman of the Federation of Small Businesses, said:

"Efforts to level up the tax playing field between corporates that mostly operate online, paying low business rates on out-of-town warehouses, and community small businesses, which are up against high rates on high streets, are to be encouraged. "But the Government must avoid simply adding further cost pressures to small firms that have increased their online presence to keep the show on the road over lockdowns." John Cullinane, director of public policy at the Chartered Institute of Taxation welcomed the consultation “as opposed to simply going ahead with a new OST”. But we would like the Government to be clearer about the objectives of the online sales tax,” he continued. “Is the Government content that while evidence shows that business rates today are ultimately mostly borne by landlords, the online sales tax would be very largely borne by consumers in higher prices?”

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