Will the Amazon tax help brick-and-mortar retail?

The aim of the Amazon Tax

The proposal, commonly referred to as the “Amazon Tax,” intends to reform the current business rates system – a longstanding method of taxing companies based on the value of their physical premises. Traditional high street retailers have often felt the strain of this system, which places a heavier tax burden on those with high-value locations, especially compared to e-commerce players who rely on out-of-town warehouses and distribution centres.

In leaked emails, the Treasury disclosed that officials plan to discuss the feasibility of an online sales tax with representatives from tech giants and retailers. This would mark a shift toward taxing e-commerce platforms in ways that reflect their economic footprint, rather than only their physical presence.

Business rates reform

The Labour party has pointed out that the existing business rates system discourages investment in the high street and creates burdensome costs for physical retailers. The manifesto outlined a vision to reform business rates to better align the tax burden across both physical and digital retail sectors.

The Chancellor’s office has indicated that the new policy will aim to sustain overall tax revenues while easing the pressures on physical retailers, especially those in the high street, leisure, and hospitality sectors. The policy could provide some financial reprieve for small and medium-sized retailers, many of whom face skyrocketing property costs.

The impact on the high street

According to industry reports, Amazon generated £33.6 billion in UK revenue in 2023, making it one of the largest contributors to the UK’s economy. Amazon has argued that it is already among the top 10 largest taxpayers in the country, having paid £932 million in direct taxes last year. Meanwhile, industry leaders like John Hutson, CEO of JD Wetherspoon, have pushed for immediate reforms to prevent business rates from quadrupling for high street businesses, which could otherwise lead to widespread closures.

Some retail associations, like the British Retail Consortium, caution against a straightforward shift of tax burdens from physical to online retail. They argue that this approach risks unintended consequences, potentially deterring investment from major e-commerce players and harming consumer choice. Amazon, for example, recently announced plans to invest £8 billion in the UK over the next five years, a move that will drive employment and innovation in the sector.

The road ahead

While Reeves’ proposal has generated attention, it remains to be seen how the tax will be implemented. It’s likely that the proposal will enter a consultation phase, providing an opportunity for stakeholders from both the retail and tech sectors to weigh in. Such consultation could pave the way for a more refined and balanced approach, with broader reform possible by next year.

For UK consumers and retailers alike, the Amazon Tax debate highlights a larger question about the future of retail. Reeves’ initiative marks a significant step in addressing the disparity between physical and online retail – but achieving fairness without hindering growth will require careful balancing.

As brick-and-mortar stores face renewed hope of support and e-commerce companies adapt to potentially higher tax responsibilities, the journey toward a fairer, more sustainable retail landscape has only just begun.

Targetfollow

At Targetfollow, we understand the government’s intentions to support brick-and-mortar retail and commend efforts to reduce costs for high street businesses. However, we also believe that both physical and online channels have a role in the UK economy, and maintaining a symbiotic relationship between the two will be essential in driving sustainable growth. Brick-and-mortar shops and e-commerce can coexist, each serving unique consumer needs, and this balance is critical to a thriving retail ecosystem.