‘Sales tax’ would increase cost of shopping

The introduction of a “sales tax” on shopping could push up costs and decimate Scotland’s already beleaguered High Streets, retail chiefs have warned.

Councils could be allowed to raise this levy, as well as tourism and environmental taxes, a recent government-back report on local taxation said. With the council tax poised to be scrapped these would help “top up” its eventual replacement and give local authorities extra revenues, the report added.

But industry leaders warned it would push up the cost of shopping and said it had not been thought through.

David Lonsdale, director of the Scottish Retail Consortium, said: “The lack of a robust and convincing business case and cost benefit analysis to accompany the recommended introduction of a new local sales tax is troubling.

“Introducing a sales tax over and above existing VAT would push up the cost of shopping. It could lead consumers to either seek out neighbouring local authority areas with lower sales tax rates or indeed drive even more retail sales online at the expense of our already under-pressure high streets and town centres.”

The news comes as shops are already dealing with rising business rates and higher employer pension contributions.

The cross-party Commission on Local Tax Reform published its final report of 2015 earlier this week, setting out options for the replacement of council tax. These options are now expected to be developed by the political parties as they prepare their manifestos for May’s Holyrood election.

The Commission also recommended that local authorities could have a broader tax base to include “environmental, tourist or sales taxes” in order to supplement any replacement for council tax.

Retail chiefs said it is not clear how much revenue any sales tax would raise and what items would be taxable. Under existing VAT rules, some items including food, books and newspapers are exempt.

The implementation or compliance costs of a new tax are also an unknown for firms, with concerns that introducing a tax of this nature would add a greater element of volatility of tax revenues into local authority finances.

Mr Lonsdale added: “Such a tax would burden retailers with extra collection and compliance costs. Measures announced in the summer Budget such as the National Living Wage and apprenticeship levy are still fresh in the industry’s mind.”

Ten years ago, the Adam Smith Institute called for council tax and VAT to be scrapped and replaced with one local sales tax. It was claimed at the time this could supply the resources councils need while renewing interest in local government. It came amid public demonstrations following major rises in council tax before freezes were implemented in Scotland and England.

But the latest plan also met with a frosty reception from Colin Borland of the Federation of Small Businesses in Scotland.He said: “In general, there is a lack of enthusiasm among smaller businesses for giving councils the power to impose more taxes on them.

“The obvious concern is that it would be the smaller retailer, hotelier or restaurateur who would end up having to collect and administer any new taxes – increasing the administrative burden at a time when they are already stretched.

“If you look at what’s coming down the road at smaller businesses – pension auto-enrolment, wage rises, tougher food waste recycling rules – they are not exactly looking for more paperwork and government initiatives to implement. We can’t keep piling it on and just expect them to cope.”

The tourist tax has already been explored in Edinburgh and is common in other major global hubs like Amsterdam.

But a “bed tax” on tourists was ruled out last year after talks were held with the Scottish Government. City chiefs contacted ministers to discuss a voluntary “transient visitor levy”, under which a fee would have been charged for every night’s stay in the capital. But concerns over reliability of income and whether enough hotels, B&Bs and guest houses would sign up saw it stall.

‘Sales tax’ would increase cost of shopping - retail bosses