Chancellor reportedly looking into tax designed to raise £2b and help save high street.

Chancellor Rishi Sunak is reported to be considering the new online sales tax to raise £2b a year for the Treasury and protect the high street from further challenges amid the coronavirus pandemic. As retailers struggle with subdued footfall, a high volume of job cuts and store closures, the chancellor is looking at proposals to level the playing field with the online channel.

The £10b business rates holiday for the retail sector, introduced during lockdown, has led to a 40% drop in revenue from business rates. The Treasury says that an online sales tax would provide a ‘sustainable and meaningful revenue source for the government’, while allowing physical stores to compete.

Two methods of taxation are being looked at. The first would see a 2% levy on goods sold online, which could raise £2b a year, while the second option suggests a charge on deliveries to cut congestion and carbon emissions.

The Treasury said last week that the pandemic ‘has had a significant impact on how business is done’, requiring the government to ensure ‘the tax system raises sufficient revenue’. It also highlighted concerns that business rates were penalising high street stores as online rivals did not need to pay them. Another long called for initiative would see the removal of business rates, a system currently based on shop rental values, which are calculated every five years. The latest plans would see business rates replaced with a ‘capital values tax’ based on the value of land and the buildings on it, to be paid by the owner of the land rather than the business leasing it.  However, this would mean that retailers located in town centres would potentially pay higher rates than both online and out-of-town rivals.

Some fear that the online tax proposals could lead to increased prices for consumers, as online retailers may pass on the extra charges.

In a statement, the Treasury said: “As the economy moves towards recovery, the government will continue to support businesses as far as possible, but it must also ensure that the tax system raises sufficient revenue to fund the services that have been essential parts of the pandemic response.”