March 1, 2024


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UK Mulls Online Sales Tax to Help Save Struggling Brick-and-Mortar Shops

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UK Mulls Online Sales Tax to Help Save Struggling Brick-and-Mortar Shops

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The United Kingdom may soon require an online sales tax.

According to multiple reports, Chancellor of the Exchequer Rishi Sunak is weighing plans to tax online retailers in a bid to raise 2 billion pounds (about $2.5 billion) a year for the UK government as well as to help flailing brick-and-mortar businesses.

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Last week, the U.K. Treasury opened a call for evidence as it reviews the system of business rates imposed on brick-and-mortar businesses. Under the current system — which was imposed in the ’90s — approximately two billion shops, offices and factories are subject to taxation based on the rental value of their outposts.

As it looks to restructure its system, the Treasury is mulling adding a tax to online retailers in order to fund a reduction in rates for brick-and-mortar shops. It is also considering restructuring its tax system to place a levy on the owner of property, rather than the occupying business.

Those in favor of modifying the taxation system say that the current system favors e-commerce platforms — and hurts shops that occupy high-value locations on the high streets. Meanwhile, those against an online sales tax argue that it would result in increased prices for consumers or make it more difficult for new retailers to establish their e-commerce presence.

Over the past few years, the U.K.’s brick-and-mortar sector has been facing pressure stemming not only from high taxation rates but also from high fixed costs, slow sales growth, heavy price competition and the rise of e-commerce — the latter of which has accelerated amid the coronavirus crisis. In 2019, the British high streets saw the highest rate of job cuts in 25 years, with over 143,000 people losing their jobs, according to the Centre for Retail Research. For 2020, the agency predicts 235,704 people will lose their jobs. It also expects 20,622 stores to shutter across the region, up from 16,073 in 2019.

Since the coronavirus crisis ramped up in mid-March, forcing nonessential retailers to temporarily shutter this doors across the U.K., numerous boldface chains have faced struggles. Over the past few months, Oasis and Warehouse and Debenhams both appointed administrators, while Laura Ashley fell into insolvency. Meanwhile, numerous chains have made the decision to cut a portion of their workforce, among them Ted Baker, Marks & Spencer, John Lewis and Harrods.

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