The government should consider introducing a so-called “Amazon tax” to make sure online-only retailers do not have an unfair advantage over their high street rivals, according to MPs.
In a report published on Tuesday, the Commons local government committee said ministers should introduce a transaction levy for online-only retailers because they do not have to pay so much in business rates, which, like council tax, are charged on all commercial properties.
At the moment, Amazon pays around £10 million a year in business rates in the UK, where sales hit £5.3 billion last year. Tesco paid £630 million in business rates last year on sales of £37 billion – seven times more on a comparable basis.
This is because the online giant only pays rates on the value of its warehouses.
Rates are calculated based on the value of each property, meaning a store on a popular high street will have a much higher rates bill than a warehouse on an industrial estate.
The MPs' report said: “There has been a recent increase in online businesses which, occupying premises with low rateable value or being home-based, pay low business rates in proportion to their turnover.”
It added: “The Institute of Revenues Rating and Valuation suggested that the problem should be dealt with by a “transaction tax [...] operated by the retailer themselves as part of the selling process”.
The MPs concluded: “The government should consider … how to ensure that revenue from online businesses is captured by local government, for example by a transaction levy on internet retailers.”
Retailers have been calling for a total overhaul of business rates for several years, and an online tax had been mooted by Sainsbury’s former boss Justin King.
But experts warned any extra tax imposed on Amazon, and other online retailers like Asos or Boohoo, could lead to a rise in prices.
Paul Turner-Mitchell, a business rates expert who has advised local authorities and the government, said: “The recommendation to explore a transactional levy on pure online businesses – an Amazon tax – is welcome to address the imbalance between the high street and online retailers.
“But the risk is it could just be seen as essentially a higher rate of VAT for online retailers, which is likely to just be passed to the consumer.”
Amazon, in particular, has been criticised for its low tax bill in the UK for several years – after basing its UK operation in Luxembourg and routing all sales through the country.
Critics, including the boss of John Lewis, have previously called for shoppers to boycott Amazon, but the US giant’s growth in the UK continues unabated, with the launch of a fresh food delivery service last week.
Previously, local authorities have suggested a “Tesco tax” to force supermarkets to pay even more taxes to local authorities where they have a considerable presence, but this was rejected by the government.
The report from the committee has also called on the government to be clearer over how it wants to reform the system, including how money is shared out.
Ministers have promised that local authorities can keep all of the money they raise in business rates, but there are warnings this could lead to successful towns getting richer as they no longer have to subsidise struggling areas.