Proposed Online Tax Could Affect Digital Start-Ups

Posted on 22nd July 2013

Calls from “bricks and mortar” retailers for a new tax on internet-based sellers have been met with criticism from detractors, who dismiss their “protectionist argument” and say that the tax could make it harder for smaller online retailers to get started.

Conservative peer Lord Wolfson, Chief Executive of clothing retailer Next, whose business draws almost two-thirds of its revenue from the high street, said that a lot of small, fast-growing online firms work on extremely slim profit margins that could be wiped out by an extra tax burden.

Meanwhile, a group of Chief Executives of a number of online retailers, including Ocado’s Tim Steiner, have signed a letter to Chancellor George Osborne claiming that the levy would destroy the UK’s entrepreneurial spirit.

Proponents of the tax, who include CEO of Sainsbury’s, Justin King, and Chief Executive of Wm Morrison, Dalton Philips, argue that they are faced with a “massive disadvantage” in terms of rent and rates.

However, while the online retailers agree that rent and rates for retailers are onerous, they see this argument as “a red herring” and say that to shift the burden to online retailers by imposing a new tax is “a nonsense that will be detrimental for consumers, jobs and investment”.

In their letter, they claim that the high street retailers’ proposal is “vague and ill-thought out” and highlight that it is unclear whether it would apply solely to online-only businesses or to shops with an online presence.

When the idea to have an online sales tax was first proposed last month, digital entrepreneurs spoke up and pointed out that they are the very “doers and strivers” the Prime Minister has said he wants to lead the way towards the UK being a hub for tech-based jobs and innovation.

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