Online sales tax could cost families an extra £175 a year

The government has been warned that an online sales tax could cost families an extra £175 a year.

The government has floated the idea, suggesting it could support high streets at the expense of online retailers, potentially set at 1 or 2% of online sales.

A paper released today by the Center for Policy Studies, backed by the Coalition for a Digital Economy (Coadec), argues that this new tax would do more harm than good to consumers, businesses and the economy – as the government’s consultation document to a great extent acknowledges.

A survey shows that 83% of businesses that sell online are likely to pass the cost of an online sales tax on to consumers, with economic analysis showing that consumers would absorb 72% of the cost of the tax.


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The UK’s poorest households could thus face an additional financial burden of up to £76 a year, reaching a potential average of £175 across all income brackets.

In April, inflation hit 9%, with the Bank of England saying it could climb to over 11% by October.

As a result, the tax is decidedly unpopular with voters and small businesses. A poll conducted by Public First for Coadec showed that around 41% of micro-enterprises and 46% of consumers oppose it, with 29% strongly opposed. The lowest income bracket where the measures were approved by a majority were those earning more than £70,000 a year.

The CPS also complains that such a tax would undermine competition, stifle innovation and distort the market. Their research also asserts that it would be difficult to design and expensive to implement, in direct contradiction to the government’s commitment to increase growth, simplify taxation and alleviate the cost of living crisis.

It could also affect the businesses it is meant to help: most high street businesses also operate online, with 87% of small high street shops believing an online presence is essential to success.

Dom Hallas, Executive Director of Coadec, said: “As consumers and small businesses grapple with a cost of living crisis, an online sales tax would not help them one bit. Although it would hit the pockets of hard-pressed consumers, it would also penalize and discourage innovation, investment and competition.

“The UK e-commerce sector was the global leader even before the pandemic drove adoption soaring. Efforts to reinvigorate Main Street are necessary and laudable, but punitive progress is not a sure way to get there.

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David A. Albanese