In an announcement made in September, the UK government confirmed that VAT refunds on goods bought by non-EU citizens, along with tax-free airside purchases, would be scrapped after the end of the Brexit transition period.
Scots Finance Secretary Kate Forbes and Economy Secretary Fiona Hyslop have told the Treasury that retail businesses already suffering as a result of the pandemic would be negatively affected if the rules were changed. The letter, published today, adds to the gulf between the Treasury and the Scottish government on finance policy.
First Minister Nicola Sturgeon in recent days described new Covid-19 measures as "unacceptable" after she claimed that no extra funding would be made available to Scottish ministers as a result of support extended to local authorities in England.
The letter said: "We urge you to reconsider this decision in light of the significant economic challenges that businesses affected by these changes are already experiencing due to Covid-19 measures.
"Since your minister's announcement in September, we have received representations from many stakeholders across Scotland, each of whom has expressed surprise at the lack of engagement from the UK government, and shared extensive concerns regarding the detrimental consequences for the sectors they represent.
"Hundreds of millions of pounds in sales could be lost in Scotland and thousands of jobs are at risk as a result of these changes, including jobs in rural areas."
The end of tax-free sales will only count for people travelling outside the EU – those travelling to the 27 European nations will be able to buy duty-free goods in British ports.
The ministers went on to express "concern" that World Trade Organisation (WTO) rules would be in effect from January 1, after the UK exit from the EU. The letter added: "The Scottish Government has not received any indication to this effect and, clearly, the potential implications of this are far-reaching. "We do not believe that this is the best route for Scotland, nor indeed the UK."
The trading landscape for businesses in Scotland will be made harder after Brexit, the letter said, when WTO tariffs are put in place on non-EU exports and imports.
A spokesman for the Treasury said: "Supporting jobs is our number one goal – that's why we're investing billions to support business across the country through our Plan for Jobs.
"We're also providing a significant boost to airports with our extension of duty-free sales to passengers travelling to the EU for the first time in over 20 years. Less than 10 per cent of non-EU visitors to the UK use the VAT refund shopping scheme and extending this to EU visitors could cost up to £1.4 billion a year.
"During the consultation, concerns were also raised that the benefits of tax-free shopping in airports aren't consistently passed on to consumers. Overseas visitors can still buy items VAT-free in store and have them sent directly to their overseas addresses."