As the UK government continues to react to the effects of lockdown on the economy and try reinvigorate it back into life, the idea of an online sales tax has reportedly been mulled over by Chancellor of the Exchequer Rishi Sunak.
The government is considering two approaches to the potential online sales tax. One option is a 2% levy on goods sold online, and the other is a charge on deliveries. The knock on effect is that prices will be raised for consumers and it’ll be more challenging to sell online. The proposals are intended to to protect high street shops from mounting competition and widespread closures.
BRC lobby against proposed online tax
Yet even though the government acknowledged that, “each proposal has potentially significant challenges, some practical or administrative, and others more fundamental,” there are some reports that the introduction of an online sales tax is becoming more likely. This has prompted a reaction from those on the front line as British retail industry lobby group has warned that an online sales tax would push up prices for consumers.
Tom Ironside, Director of Business and Regulation at the British Retail Consortium, said:
“Taxing the sale or delivery of online goods would simply be another burden on an already overtaxed industry, one that would ultimately hit consumer spending through higher prices.
Throughout the pandemic, many of us have been relying on retailers to ramp up their online services to ensure we can all get the goods we need. The government should not harm these efforts by further taxing the businesses.”
And as noted, the eCommerce business model has been a force for good throughout the lockdown allowing those who could not get access to products and services from the safety of their own home. The popularity of online shopping throughout the lockdown period was highlighted by the fact that while online purchasing accounted for 43% of all shopping prior to the pandemic, it rose to 62% following the Government’s introduction of lockdown in late March.
And even as the UK exits the lockdown period as we previously knew online sales are continuing to boom. Those who are heading back to brick and mortar stores are finding a different customer experience that does not satisfy needs and meet demands. According to a recent study by ChannelAdvisor and Dynata, 60% of 1,050 UK shoppers said that they had not yet visited a shop one week after they reopened on 15th June. Of those that had, 40% said that the in-store experience was ‘less enjoyable’ than their experience before coronavirus. Tellingly, 67% of shoppers also said that they are comfortable purchasing from online marketplaces, yet it is the eCommerce industry that will be damaged by the proposed tax still.
Online sales tax penalises eCommerce businesses
Arguments have been put forward by business operators too. As an individual operating within the eCommerce space, David Kennett, COO of men's health and wellness business, Optimale, said:
"The idea of introducing an online sales tax to prop up the high street is a poorly thought out reaction to a situation which has been a growing issue for a number of years, now sadly aggravated by the Covid-19 pandemic. The high street has been in decline for many years due to several factors including high business rates, expensive city centre parking and competition from online businesses that offer greater convenience. If the government wants to re-invigorate the high street, they should focus on cutting business rates, and making it easier for people to shop in high street stores.
Penalising online businesses like ours who offer a service which is much more convenient for people to use from the comfort of their home, is unlikely to help the high street - it is just yet another tax on business that will end up increasing prices for consumers. Saving the high street is not going to be achieved through increasing taxes."
Other notable online businesses have also commented with ASOS CEO, Nick Beighton, arguing the online sales tax would actually be self-defeating for the government and do more harm than good for consumers. He said:
"We actually think that will be self-defeating for the government as online sales [charges] will end up being packed onto consumers. We certainly agree, although it’s not a big part of our estate, that the business rates system does need reform. We haven’t started any work on implementation of [the online sales tax] because it’s still a proposal."
To combat any proposed taxation, eCommerce businesses are likely going to have customer relations at key touch points throughout the journey with more care and offer them a greater customer experience incentivising them to complete their purchase.
Cloud.IQ’s overlays address this by utilising overlays that plug key points such as the browsing stage and the cart stage of the customer journey - both of which are highly susceptible to abandonment. Using the overlays, eCommerce businesses are able to nurture customers' desire to purchase by providing discounts in exchange for newsletter sign-ups, or even simply notify customers that they are yet to complete their purchase and offer them a direct way to return.
To learn more about creating a customer journey that continues to drive sales in different contexts, click below for a free trial of the Cloud.IQ platform. Alternatively, if you would like to have your say on the eCommerce taxation, message email@example.com with your views.