If we are to repair the damage to public finances caused by the Covid pandemic and to solve other pressing issues like the Care Crisis it is clear that more funds are going to be required. This means raising taxes, but which taxes should be raised?
The convenience, speed and price advantages of online purchasing have led to big changes in purchasing behaviour. One of the results of this move online is that High Street businesses have suffered and the ensuing retail closures mean that Local Authority finances are under pressure because of a lower overall take from business rates.
Business rates make an important contribution to Local Authority finance and yet we have seen how fast-rising Business Rates have themselves contributed to the financial pressure on ‘bricks and mortar’ businesses. There is no doubt that the High Street is disadvantaged compared with Direct trading, which escapes this tax.
In addition to escaping Business Rates, Direct Traders avoid other taxes. For example, Uber employ self employed drivers who pay lower taxes. Online traders also secure subsidies from the rest of society. Excessive and disproportionate use of the road transport system means they create more congestion and pollution than bricks and mortar businesses but do not contribute more to pay for that use. Putting up the price of fuel would simply penalise everybody and provide a further subsidy to Direct Traders. Some online traders also pay low wages, which are topped up by welfare benefits, further increasing subsidy. Covid has of course increased the revenue of Direct Traders as a result of enforced lockdown, an un-earned benefit.
How, then to both raise tax revenue and at the same time introduce more fairness and balance of the tax burden across different trading business models? The answer is to introduce a Direct Trading Tax to be levied at the point of sale as is done with VAT. Small traders could be exempted, as with VAT. Some businesses have both direct and indirect business models with the ‘click and collect’ service. The criteria for imposing this tax would be that where the sale is made directly with the consumer – over the telephone or online – the tax would be due. The level is to be determined, but could be in the range of 5-10% levied on the base price.
This is a much simpler approach compared with attempting to tax the revenue or the profits of the Direct Traders based on their profit and loss account, which can be manipulated with royalty payments and other ruses to engineer payment of taxes in lower taxed countries. It is fair since the consumer is also taking a share of the costs they are imposing on society as a whole by buying direct. In any case, online competition means that there will be pressure on the base prices charged by Direct Traders, preventing them from simply passing all the tax on to the consumer. Taxing all Direct Traders in this way also avoids the charge that the Government is singling out the likes of Amazon, which has invoked the displeasure of the USA Government. Finally, a Direct Trading Tax will help redress the price differential between online and High Street purchases and better enable them to compete.