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News that Amazon have once again managed to reduce their tax bill, despite a 3 fold increase in their profits, should come as no surprise. The retail giant has shown time and again that they are highly proficient at finding ways to reduce their tax liabilities. Whilst always quick to point out that they have complied with legal requirements, their ability to play the system could have a disastrous knock on effect on the UK’s retail sector.

Just because it’s legal doesn’t make it right!

The general decline in highstreet sales over recent years is nothing new.  We have seen an increasing number of store based retailers radically restructuring, such as House of Fraser, who have recently confirmed their plans to close 31 stores nationwide.  Other large names, such as Toys R Us have folded and disappeared from our highstreets completely.  On one level this is inevitable as consumers switch their shopping habits from the traditional to the convenience of on-line shopping.  But what is it about Amazon’s approach that is damaging the whole sector?

 

Why will the customer lose out?

Amazon’s unparalleled logistics network means that they can undercut other retailers in terms of speed and price.  Both of which could be argued to be in the consumers’ interest. However, their practices are creating an uneven playing field in the sector which could eventually lead to reduced choice and a diminished retail experience for shoppers.

Other retailers with similar UK sales are paying around 20 times the amount of tax of Amazon.  Strategies such as paying staff with shares is just one way in which they are managing to dramatically reduce their tax bill.   With highstreet based stores also facing the added burden of business rates, their ability to compete with Amazon is becoming an almost impossible challenge.

 

So, what will be the long term effect on the sector?

Despite falling high street sales, a large proportion of the population still value the experience of going into a store and being able to see items for themselves.  Of course, many will then go home and order on line or purchase the item from Amazon at a reduced price.  Whilst this may seem like a great idea in the short term, if we all keep doing this eventually there will be no shops left for us to browse. 

On-line sales account for 18% of total retailing expenditure (source Office of National Statistics June 2018) but for many stores this reduction in shop sales has impacted substantially on their profits and future viability.  If this trend continues then our ability to enjoy the physical experience of shopping may be dramatically reduced in the future as less and less stores retain a high street presence.

 

Retail workers become warehouse slaves

The UK retail sector currently employs around 2.9million staff, making it the largest private sector employer in the country.  But how long will this remain if the decline in stores continues?

Amazon’s questionable employment practices have been well documented, with serious concerns raised over their working environments.  Staff work under extreme pressure with every stage of the process timed, automated and target driven.  The fact that they have been named by the US National Council for Occupational Safety and Health as one of the most dangerous places to work in the USA speaks volumes about the conditions that staff are working under.

Imagine what the long term impact of the decline in sales will be for the retail workforce who may well find themselves in a few years’ time facing the prospect of becoming a warehouse slave or having to change career completely.

 

What can be done to reverse the trend?

Whilst the march towards an ever increasing on-line retail sector looks set to continue, this doesn’t necessarily mean the end of the highstreet. Retailers are finding ways to blend their on-line offerings with their stores to provide customers with the best in choice and experience.

But what we need to see is the Government undertaking a radical review of both the tax and business rates systems to ensure that all companies, Amazon included, are competing on a level playing field.

 

The benefits of an on-line sales tax

One potential approach to rebalance the market could be the introduction of a ‘e-commerce sales tax’, levied on all on-line sales. This could be balanced against a reduction in business rates for highstreet stores. Whilst this might not appear to be in the consumers’ interests, any related price increases could be offset against price reductions for goods brought in high street stores.  Essentially consumers would be paying for the convenience of buying on-line, whilst the potential for lower prices in store might encourage an increase in traditional sales.

 

Radical redesign of business rates

As an alternative to a specific on-line tax, the current business rates system would be redesigned to make it applicable to both store and on-line businesses.  Whilst currently business rates are essentially a property tax, if they were redesigned as a tax based on volumes of sales, this could be applied on an even basis across the sector.  This would level the playing field and mean that on-line giants like Amazon would have to pay taxes on the same basis as their competitors.

 

Government action is needed now

One thing is for sure, the current system of tax in the retail sector is outdated and is a key factor in speeding up the demise of the highstreet. The fact that only 18% of total sales are on-line clearly shows that the UK public still value the highstreet and are not ready to see this replaced completely by virtual shopping.  However, it will only be through some form of radical tax system redesign that customers of the future will have the same choice and variety that we currently enjoy and will not be left with Amazon as their only option.

 

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