Labour Party proposes raising UK Digital Services Tax (so Amazon can pass the hike on that, too?)

Retailers not enthused

Calls for a hike in the Digital Services Tax (DST) have received a lukewarm response from British business – even among retailers that have been squeezed the most by online giants like Amazon.

The proposed increase from 2 to 12 per cent was made on Monday by Shadow Chancellor Rachel Reeves as she addressed the Labour Party Conference in Brighton.

It's party conference season at the moment (the UK's House of Commons is in recess from 23 September to 18 October), so we can expect more such ideas from all sides.

DST has been in place in the UK since 1 November 2020 in response to widespread tax avoidance by the tech sector. When it was first put in place, Amazon responded by hiking prices for third-party sellers that use its marketplace, claiming it simply couldn't afford to absorb the added cost.

Just over a week ago, Britain's Prime Minister Boris Johnson met with Amazon CEO Jeff Bezos to talk about – among other things – the firm's scrupulous (legal) tax, er, efficiencies. He didn't make much progress, which isn't surprising.

As for the Labour suggestion, shadow chancellor Reeves singled out the DST as a way to pay for abolishing business rates and helping out struggling small businesses, especially those on the high street.

She argued the DST should increase to 12 per cent in the next year to "make sure online companies that have thrived during this pandemic are paying their fair share of taxes."

Her crowd-pleasing speech singled out tech giants – particularly Amazon – in an attack that won applause from across the room.

"How can it be when bricks-and-mortar high street businesses are taxed more heavily than online giants?" she asked the conference. "High street businesses pay over a third of business rates, despite making up only 15 per cent of our overall economy.

"But when Amazon's revenues went up by almost £2bn last year, how much did their tax go up by? Less than 1 per cent."

Referring to Bezos, the firm's founder, Reeves said: "If you can afford to fly to the Moon, you can pay your taxes here on planet Earth."

At the time of writing, no one from Amazon was available to comment on the proposed tax rise, the amount of tax Amazon pays, or the fact that Mr Bezos didn't actually fly to the Moon but made it into space instead.

The Treasury also declined to comment on Reeves' proposals, with an insider telling us that due to the political nature of Labour's conference, it was a matter for Conservative central office.

When asked to comment, a spokesperson for the Tories chortled before politely declining our request.

Thankfully, some of the UK's business leaders were happy to comment even if they were somewhat measured about the proposals.

Andrew Goodacre, chief exec of the British Independent Retailers Association, told us: "For a long time, independent retailers have been calling for a 'levelling of the playing field' between physical store owners and the internet giants.

"Labour has proposed a significant increase in the Digital Services Tax, and if all this extra tax was paid, it would allow the removal of business rates.

"However, our fear is that the large companies would simply pass this extra tax on to the suppliers and smaller companies that trade on the platforms, and thus avoid paying any extra tax and avoiding reduced profits."

Instead, he called for the international corporate tax discussed at the G7 meeting, as that would result in more tax being paid to the countries where the sales are made.

Even the British Retail Consortium couldn't get too excited.

"The BRC welcomes innovative thinking on solving a huge problem for retail and supporting investment and future growth," it said. "We look forward to seeing the details from which we can make a proper analysis, particularly regarding the basis and scope of any replacements to rates." ®