In April last year, Chancellor Rishi Sunak introduced a two per cent tax on digital sales, partly in response to firms’ habit of re-routing profits through countries where the taxes are low. Companies like Amazon, Google and Facebook needed to “pay their fair share of tax”, he said.
And, we can all agree, fairness in taxation is an important concept.
High street retailers must look at the levels of tax paid by online rivals with considerable envy.
A large department store in Glasgow could pay more than £1 million a year in rates alone, as well as employing a large number of people and providing wider economic benefits by, for example, indirectly supporting local businesses like sandwich shops where staff and customers buy their lunch.
But such stores and many more smaller ones have been closing down in cities and towns all over the country – reducing the tax revenue for the government and ending the livelihoods of vast numbers of workers – while internet rivals have benefited from the internet boom during the pandemic.
Figures released in September showed that Amazon paid £293 million in tax in the UK over the previous year, on sales that totalled nearly £14 billion. And while the growth of online retail has benefited firms like couriers who deliver the parcels, it has nothing like the same economic ecosystem that grows up around physical stores.
So Scottish Labour’s plan to put extra taxes on online corporations such as Amazon is perfectly understandable and may be reasonable. This is an issue most parties are thinking about.
But there are risks of imposing extra digital taxes.
The internet has expanded the potential customer base for many Scottish businesses, particularly smaller ones, from local to global, with Amazon playing a leading role.
Countries that impose higher taxes on such international transactions risk falling behind those that do not in building the kind of economy suited for the 21st century. It could create a pressure on companies based here to move to England – and, given time, start-ups can become giants.
So caution is required when seeking to replace lost sources of government revenue, and to make taxation fair.