Tesco seeks online sales tax to fund business rate cuts

Tesco has urged the government to impose a 2% online sales tax to help pay for a cut in business rates for shops, saying the current system is unfair and is damaging communities across the UK.

In written evidence to a Treasury select committee investigation, the UK’s largest retailer – which pays about £700m a year in business rates, making it one of the biggest payers of the property-based tax – has made detailed proposals for a shake-up of the system, which has been partly blamed for the problems facing high street shops.

The supermarket suggests the government could raise £1.5bn via an online sales levy of 2% on physical goods, as defined by existing VAT regulations.

Tesco says the government could use that revenue to fund a 20% cut in business rates for all bricks-and-mortar retailers. It says small businesses could be exempted from the online sales levy.

“There is overwhelming evidence that the business rates system is not equitable and is damaging investment and growth,” Tesco said in its submission.

“We believe action must be taken to avoid prolonging an anachronistic tax that has not materially changed since 1988 and is damaging communities across the UK.”

Tesco’s written evidence ramps up a campaign for change led by its chief executive, Dave Lewis, who first called for an “Amazon tax” last year.

In 2015, he warned against a “lethal cocktail” of £14bn in extra costs over five years from an increase in business rates and the introduction of the national living wage and apprenticeship levy.

Commenting on the proposal submitted to the Treasury committee, Lewis said: “The business rates system is increasingly outdated and in need of urgent reform. The burden of rates has become unsustainable in a retail sector that saw 7,500 net store closures last year, but still employs 3 million people.

“The introduction of an online sales levy would create a level playing field, incentivise investment and do so in a way which is revenue neutral for the government.”

Tesco’s submission says an online sales tax would be “economically robust” and would, according to Tesco legal advice, be compatible with EU state aid rules. It says “existing processes and mechanisms could be used to implement the reduction” in business rates.

The idea of an online sales levy has also been put forward by Mike Ashley, the founder and chief executive of Sports Direct and owner of House of Fraser. He has called for a tax on retailers that make more than a fifth of sales online.

He told MPs at the housing, communities and local government select committee’s investigation into the future of the high street that many town centres were “already dead” and more would be killed off without government intervention.

The Treasury select committee is looking at the impact of changes to business rates policy since 2017 and possible alternatives to the property-based tax.

Robert Hayton, the head of UK business rates at property advisers Altus Group, welcomed Tesco’s proposal.

He said: “There is now an overriding consensus of opinion that the tax playing field must be levelled, given the tax-to-turnover ratio disparity, whilst the proposal ensures additional revenue is ring-fenced for the good of the entire sector.”