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Rebalancing retail sector taxation

Back in 2006, online shopping in the UK represented about 3% of total retail sales. As of March 2020, right before the pandemic, this number had increased to about 22%. Online shopping then spiked during the pandemic, as we all know, but it has since normalized and the January 2022 figure was about 27.1%. But if you exclude grocery sales (because food is special), I believe the percentage of online sales is now in the range of 35-40% for the UK.

What is clear is that there is a longstanding shift towards more online shopping. It has just become so easy. However, UK retailers, as well as many others I’m sure, have been arguing that part of the reason for this systemic shift is an unfair tax advantage.

Physical retailers tend to be located in high-traffic areas and so they are naturally subjected to higher municipal taxes. Online retailers, on the other hand, get to locate their warehouses and distribution centers in lower cost locations and so aren’t taxed at the same kind of rates.

Because of this perceived imbalance, the UK is now studying the pros and cons of implementing an online sales tax (OST) as a way “to help rebalance taxation of the retail sector.” Tax online so offline seems more attractive.

But this is a tricky thing. Nobody wants to see our main streets and urban centers void of retail activity. That would be like walking through a financial district that had decided to bury all of its retail activity underground or something. But at the same time, does it make sense to shift taxes to what the market seems to like and want? Though I suppose it could be a lucrative tax since you generally want to target things with inelastic demand.

What are your thoughts?

More info on the OST consultation, here.


  1. Rafik

    It will likely also mean a rise in online products prices which does not really serve the end customer…


  2. Sergei

    “That would be like walking through a financial district that had decided to bury all of its retail activity underground or something.”

    That’s exactly what Bay Street did.


  3. There should also be congestion and road pricing for trucks, so that a bunch of little trucks delivering to 100s of apartments will pay more than 1 big truck delivering to a supermarket. There’s a hidden subsidy to all those direct-to-customer delivery options that clog our streets and clutter our sidewalks.


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