Realist, not conformist analysis of the latest financial, business and political news

Naked Self-Interest And The Idea Of Higher VAT For Online, Amazon, Sales

The latest suggestion for dealing with the decline of retail is one of such naked self-interest that those proposing it should be ashamed of themselves. Given that this isn’t something ever likely among estate agents we should instead point at them and laugh.

Or perhaps not laugh so much – Mancur Olson’s analysis of a democratic economy was that it becomes simply a cat fight among the special interests for who can pick our pockets. Here it being the landlords of commercial property who wish to be granted the privilege of doing so. For this truly is an outrageous suggestion:

VAT laws should be reformed to create a two-tier system for online and physical retailers in an attempt to save the country’s dying high streets.

As calls grow for an “Amazon tax” on online retailers, one of Britain’s largest property consultancies has argued that an overhaul of the VAT regime would be a more effective way of saving shops.

Colliers International suggests that charging 15 per cent sales tax for purchases in stores and 22.5 per cent VAT for online transactions would help to level the playing field.

One comment about this:

Fears that online retailers enjoy unfair advantages have led to calls for a shake-up of taxes from senior industry figures, including Justin King, the former chief executive of J Sainsbury — which pays about half a billion pounds a year in business rates. Philip Hammond, the chancellor, has said that he is considering a so-called “Amazon tax”.

It’s just special pleading. And as such it should be rejected. Vehemently, even to the point of tarring and feathering those who suggest it.

The underlying point being that we don’t actually want a level playing field between different ways of doing the same thing. We want the method which has advantages to win out – that’s how human life, the economy and the society, progresses. We don’t want a tax on cars so that horses can have a level playing field, we don’t want a tax upon mobile phones so that the Post Office continues to gain business. So, a business model which is light upon physical property should not be taxed to make up for the property taxes it is not paying.

Yes, of course, it should be taxed exactly the same way as all other businesses. The same petrol or derv tax, the same vehicle duties, the same profits taxes, the same property taxes. But those property taxes are deliberately built so that those occupying scarce and thus valuable high footfall space pay more than those working out of some dive round the back of the industrial estate. That’s what business rates are, a tax upon the use of scarce and valuable property. We can now get our consumables by buying from people who use less of this scarce resource. That’s good, that makes us all richer.

So, this idea of a high VAT is really just to protect the interests of those landlords. As Ricardo on Rent tells us, that scarcity value of that land accrues to the landlord, not the retailer. So, additional tax upon the online retailers means that the physical ones will gain a larger share of the business. Thus pumping up the value of those high footfall sites and the rent that the landlords can obtain.

This is purely and solely a policy that will favour landlords of commercial property, no one else. And at the cost to all consumers of course. We’ve a special interest arguing that we should be poorer so they can be richer.

We’ve also faced this particular opportunity before. Post the Napoleonic Wars it was obvious enough that better transport methods meant that foreign grain could be brought into Britain cheaper than before. It was also true that the war economy had riven up rents as there was a certain emphasis upon domestic production of grain. Our Ricardo again, landlords gained the most from this. Therefore, in the new peacetime, limits were placed upon the ability to import grain and thus keep the price high. That flowing through into high rents, the aim of the policy in the first place. Took a bit of time, sure, but we examined this and told ’em to bugger off. We repealed those Corn Laws, imports grew, wheat and bread prices fell, the people who lost out were the landlords with lower rents. We were right to tell ’em to bugger off that is.

As we’ll be right to do so again. The beneficiaries of a differential and higher VAT rate on online sales will be the landlords of commercial retail property. The losers will be every consumer in the country. The correct answer to this suggestion is thus “Bugger Off Matey.” Perhaps accompanied by a vigorous waving of pitchforks and burning brands just to get the message across. No, we shouldn’t be made poorer so that you can be richer. Bugger Off.

0 0 votes
Article Rating
Notify of

Newest Most Voted
Inline Feedbacks
View all comments
Neil McEvoy
Neil McEvoy
5 years ago

Corporation tax should be abolished to level the playing field (with a general increase in VAT to make up the difference, if necessary). That way, giant multinational companies cannot game the system by shifting profits to other places and into the indefinite future.

5 years ago
Reply to  Neil McEvoy

The corporation tax will someday be reinstituted, for the same reason it was originally instituted (envy, plus the illusion that someone else would be paying it). You will wind up saddled with a higher VAT. Wasn’t the VAT originally a less savings-hostile way to raise revenue, enabling the elimination of the income tax?

5 years ago

The assumption being made is that lower prices, not always the case, are the only reason for shopping on-line. Thus overlooking: – Time saved by not having to travel to one or more stores to shop around, only to find they don’t have what you want. – No travel and parking costs. Not having to worry whether you can park or having the inconvenience of public transport, particularly in rural areas. – Convenience of checking what is available, range of choice, making product and price comparisons without leaving home. – Customer reviews, fast often free delivery, no-quibble returns policy. –… Read more »

5 years ago
Reply to  BB01

Add that Amazon/eBay/etc. are a large firm, motivated to ensure customer satisfaction (even though the actual merchant is independent), whereas the typical High Street retailer might not be.

All of these advantages are the reason for the proposed tax differential: to induce you to make the wrong decision. The country needs an “Equalizer-General.”

5 years ago

It is almost impossible for government to favor one group of people without harming another. Government can, in fact, greatly favor one group over another. However, point that out to anyone in government or who favors more government as being a problem and they will look at you with a puzzled expression. They consider determining whom to favor as being one of their responsibilities. Not to mention that they can themselves benefit by their decisions. You could call it a perk of elective office or a significant bureaucratic position.

Would love your thoughts, please comment.x