An Amazon Tax – robbing Peter to pay Paul?

• As predicted, the official retail sales figures from the ONS were much stronger than those previously indicated by the BRC. Year-on-year, retail sales values were up 5.5% in July. Stripping out inflation, volume/real growth was still a very respectable 3.7%. Boosted by the heatwave, foodstore sales increased by 5.8% in value. Non Food retail sales saw an uplift of 1.7%, with clothing experiencing a 1.0% increase during the month. Figures that would otherwise prompt calls of a retail bonanza in more forgiving times.

• Strong recent growth in DIY spending (+6.5% in July alone) was also mirrored in B&Q’s trading performance in Q2. In the period to 31 July, like-for-like sales were up 3.6%, while total sales were up 3.9%. Screwfix was the top performer for parent Kingfisher, generating a like-for-like sales increase of 5.5% and a surge in total revenues of 11.8%. However, Kingfisher’s strong Q2 performance failed to fully counterbalance a miserable, ‘Beast from the East’-ravaged Q1.

• Stellar figures from Fat Face. For the full year to 2 June, the business achieved sales of £238.4m, an increase of 7.4% overall and 4.9% on a like-for-like basis. Online sales were up 11.8% year-on-year and account for around 20% of revenue. EBITDA rose 5.6% (+23.4% at constant currency rate) to £30.2m. A great example of a focussed retailer that knows its customer base, delivers on product and maintains brand integrity by limiting promotional and discounting activity.
  
  

Stephen Springham, Head of Retail Research:

The penny is slowly starting to drop in one of the areas that matters most – the corridors of power in Westminster. The UK retail sector is in need of positive intervention generally and more specifically, the current business tax regime is no longer fit for purpose.

It’s a slight shame that it has taken two distinct events to finally prick the government’s conscience, namely House of Fraser’s descent into administration (and subsequent buy-out) and disclosure of Amazon’s meagre tax payments in the UK.

No matter that the link between the two is actually quite tenuous, the fact that both events coincidentally happened at broadly the same time seems to have spurred the government into life and ask questions that it has previously just swept under the carpet.

At the moment, we just have words rather than actions. Chancellor Phillip Hammond told Sky News: “We want to make sure that the high street remains resilient and that we also make sure that taxation is fair between businesses doing business the traditional way and those doing business online.”

Furthermore, it seems that he would be willing to push ahead with new taxes without necessarily having international co-operation: “if we can’t get international agreement to this we may have to look at temporary tax measures to rebalance the playing field until we can get international agreements.”

The media and many others have interpreted these pledges as an “Amazon Tax” (but obviously other players would be affected too). Amazon’s tax disclosures have always made for uncomfortable reading.

It is notoriously difficult to gain an accurate understanding of where profit (upon which tax is charged) is accrued, where it is re-distributed geographically and where it is re-invested in the business. But the latest disclosure is thus: Amazon UK Services tax bill in the latest financial year was £4.6m, down from £7.4m a year ago. Of this, £2.9m was deferred, meaning that it has paid just £1.7m.

There is no question that Amazon is acting within the law as it currently stands. Which is why the law needs to change. A £1.7m tax contribution from a global behemoth that generates sales in the UK alone of ca. £2bn just does not seem equitable, all the less so given its undoubted wider influence on the UK retail market.

What jars more is the seemingly blind acceptance of Amazon Prime devotees, many of whom are quick to pass judgement as to what is appropriate in every other walk of life, but turn a blind eye to something that is this morally questionable (maybe they should replace the annoying ‘Want Amazon to donate to a charity of your choice?’ cookie with ‘Do you want Amazon to pay a fair UK tax rate?’ pop up?). As a disruptor itself, surely it must accept the notion generally of shifting goalposts.

At the same time, I’m personally against the principal of taxing successful operators (which Amazon undoubtedly is) as a punitive measure and to this end, I wouldn’t embrace any triumphalism that others in the property industry may indulge in if an “Amazon Tax” comes to pass. Taking a more holistic view on UK retail, an “Amazon Tax” has limited merit in isolation.

It is hard to see how other high street retailers can benefit if Amazon and its pure-play peers are clobbered on the tax front. And I suppose this is the one fear the cynic in me has from Mr Hammond’s statements. ‘Levelling the playing field’ can’t just mean dragging Amazon down to then high street’s level – this level too has to rise and the two must meet somewhere in the middle, rather than just at the top or bottom.

And a complete reform of the current business rates system would be a key conduit to achieving this. Retailers and landlords do not usually agree on anything. But they do on business rates and neither think that the existing system is fair or relevant.

At the moment, we have more questions than answers. The key one is how any changes to online taxation will be enforced and what this means for multi-channel retail.

Having long argued that the dividing line between online and high street retailing has blurred to the point of no longer existing, it would be hypocritical of us to conveniently re-impose it now in a tax context. But surely any measures can only be enforced on pure-play operators, else collateral damage would be done to the very retailers we are seeking to help.

That the government is acknowledging some of the most serious issues facing UK retail is encouraging. But at the moment, we only have a few verbal assurances. Actions will ultimately speak much louder than words.