The Economic Impact of an Online Retail Sales Tax in the UK
Amazon have commissioned Oxford Economics to produce an independent quantitative assessment of the economic implications of the introduction of an online sales tax in the UK.
On 27 July 2020, HM Treasury (HMT) announced a call for evidence around the issue of a business rates review. Contained within this document was a consideration of alternative tax bases that could raise revenue for the Exchequer to compensate for any shortfall that might be created by business rates reform. One of the options proposed was an online sales tax (OST).
In this context, Amazon have commissioned Oxford Economics to produce an independent quantitative assessment of the economic implications of the introduction of such a tax in the UK.
We find that that the introduction of an OST would raise around £1.6 billion in government revenue. The burden of the tax would be split between consumers, online sales platforms, and upstream businesses.
Our analysis shows that a majority of the tax’s burden will most likely be borne by consumers who could lose around £1.3 billion in welfare terms. The net inefficiencies due to the OST are estimated to be around £200 million (i.e., 13% of the revenue).
The government’s fiscal options will need to be assessed against a range of economic as well as procedural criteria. In our assessment of the OST against the Treasury Select Committee’s principles of taxation, we found that the OST is distortive and also could potentially restrict SMEs from competing in the retail market. Further, the disproportionate impact on households in the lowest income decile and on economically weaker regions of the UK as well as the restrictive effect on the elderly and the disabled raise questions about the fairness of the OST.
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