BRC Issues Warning Over Potential Online Sales Tax

The shoppers have switched to online and e-commerce platforms due to the catastrophe caused by the novel coronavirus. The deadly pandemic has claimed more than 45 thousand lives across the United Kingdom. Britons still are fearful when it comes to shopping from high street retail and public squares. Moreover, businesses spanning other sectors are trying to venture into the digital world and are making changes to their existing business models, which could help them in the acquisition and servicing of customers.

Meanwhile, Rishi Sunak, the Chancellor of the Exchequer, has reportedly been planning to impose different tax regime for the online retailers. This move can be understood as a mechanism to safeguard the high street retail from the mounting competition. However, the retail industry lobby group, British Retail Consortium (BRC) has said that higher taxes would translate into higher prices for consumers.

The possibility of a new tax regime in the digital space could add insult to injury for the already battered sector. The CPI Index (Consumer Price Inflation) was up in June as pricing of clothing and accessories went higher. Given the prevalent conditions in the economy, charging higher prices from consumers could push the inflation further up much earlier than anticipated. According to market experts, inflation is likely to kick in by the end of this year (2020). In addition, higher prices could deter consumer spending as well.

Also read: UK’s CPI Inflation Increases To 0.6% In June Aided by Games and Clothing

With schemes like ‘Eat out to help out’, the British government is like to boost consumer spending indirectly. This could pose a conflict of interest with higher prices of goods & services in the sector. The government should appreciate the retailers for their impeccable services in making the lockdown successful, just like the NHS. Britons were heavily reliant on online retailers throughout the pandemic.

The onslaught of the unprecedented crisis has undoubtedly changed the dynamics of the retail landscape. During the peak of the spread of the virus, people were encouraged to remain indoors and practice social distancing. This was done to curb the spread of the deadly virus. Most of the supermarkets witnessed stockpiling by panic-stricken investors. Therefore, most of the supermarkets had to impose limits on essentials such as food staples. As the number of coronavirus infections surged substantially, people feared going out even for essentials.

There was an unprecedented rise in online orders during the government-imposed lockdown. Retailers were seen setting up virtual queues for its customers. Most of the retailers went on a hiring spree and doubled their delivery slots during the peak of the coronavirus pandemic.

Although British retailers such as Tesco Plc (LON: TSCO) has been doing well as it has an online presence, the company which is into the ‘big four’ supermarkets of the country has not only diversified geographically but varied product areas such as electronics, clothing and books etc. On the same time, German retailers such as Lidl and Aldi are likely to face difficulties as the fear of the coronavirus continues to grip the nation with a local lockdown imposed in Leicester recently. Additionally, Tesco has in the last 18 months has focussed more on the price and quality of its own-brand goods, primarily to offer a better value proposition at various price points as compared to the German competitors Lidl and Aldi, who have now captured around 16 per cent of the UK retail market.

As per the data from Office for National Statistics (ONS), the monthly retail sales volume fell sharply during the peak of coronavirus crisis as the stores ceased trading following government guidance during the coronavirus pandemic from 23 March onwards.

The value for food, household goods and other non-food items all increased sales on the month by 15.3 per cent, 18 per cent and 16.4 per cent, respectively during the lockdown period. These items recorded strong growth in comparison to the previous year. The value of food sales recorded a monthly growth rate of 101 per cent during the unprecedented crisis. Supermarkets recorded an increase of 17.9 per cent for online food orders in March (2020).

In addition, non-store retailing increased by 5.1 per cent month on month in value terms along with month on month rise in the volume of goods by 5.9 per cent in March 2020. The non-store trading such as stalls and markets, and pop-up stores along with online stores, fall under the category of Non-store retailing.

Huge sales of 31.4 per cent in terms of volume were recorded at alcohol stores, and Supermarkets witnessed a strong surge in volume sales at 10.3 per cent. There was a huge surge in online orders as many stores ceased trading from 23 March 2020. However, some stores offered door to door delivery. As consumers switched to online platforms due to enforced lockdown, online sales as a percentage of Retail sales made a new high of 22.3 per cent in March 2020.

In comparison to the previous year period, Department stores witnessed a month on month growth of 47.4 per cent in March 2020. The stores dealing in Household goods recorded a month on month increase of 36.9 per cent in March.

Also read: UK retailers to come together to provide for the nation during the Coronavirus pandemic

According to the data from ONS, the online spending done by the consumers have nearly tripled in ten years. It has increased from just 4.9 per cent (2008) to 17.9 per cent (2018). In addition, 54 per cent of senior citizens (aged 65 years and over) have shopped online in 2019. Nearly 90 per cent of adults used the internet daily in 2019.

This was the period when the world was not shaken by the coronavirus outbreak. With the spread of this deadly virus and people being forced to stay indoors, the dependence on the internet has increased manifolds, and it has become the only viable option for people to order essentials. Also, the businesses are revamping their business models as to how they can acquire, service and deliver to a customer through online platforms.

The government should not discourage the efforts of online retailers by levying such tax regimes as they stood up when the chips were down for the people they serve. On the other hand, increased tax receipts would help the government in balancing the outflow of public finances of more than £300 billion due to the economic impact of coronavirus crisis.