Boris Johnson and chancellor Rishi Sunak are considering an online sales tax to help high street retailers compete with tech giants like Amazon, Downing Street has confirmed.
The Treasury will look at the idea as an alternative to business rates, creating a new levy that would add about 2% to the price of all goods bought on the internet.
Some critics fear that the move would be regressive, hitting the poorest more than the rich, and would hit hard-pressed consumers in the pocket rather than online firms directly.
But No.10 said that the policy could be used to raise billions in extra income for public services.
The prime minister’s official spokesman said that a call for evidence had been issued as part of a new review of all aspects of the UK’s business rates system.
“As part of this we will consider the case for introducing alternative taxes as part of the review, including an online sales tax,” the spokesman said.
“The pandemic has had a significant impact on how business is done and the effect of this will become clearer over time.
“We will continue to support businesses as far as possible but we must also ensure that the tax system raises sufficient revenue to fund our vital public services.”
Sales of goods online have soared by 50% during the coronavirus outbreak as Britons were forced to stay at home to shop.
With many non-food high street retailers suffering badly in the pandemic, firms like Tesco have claimed that an online shopping levy or ‘Amazon tax’ could raise £1.5bn a year, enough to cut business rates by 20% for all retailers.
Any new online retail sales tax would come on top of the digital services tax which came into force in April and which levies a separate 2% charge on company revenues at source.
Shadow Treasury chief secretary Bridget Phillipson told HuffPost UK that the principle of getting tech firms to pay their fair share was right, but warned against any move that would add yet more costs onto those struggling with household bills.
“Time after time the Tories have disadvantaged businesses based on bricks compared to businesses based on clicks,” she said.
“So we will need to see the detail of any government proposals to ensure they actually help our high streets instead of just putting up prices for consumers.”
According to a TaxWatch study earlier this year, five of the biggest tech companies operating in the UK generated profits estimated at £8.1billion from British customers in 2018.
But they paid only £237m in taxes on these profits in the UK – an effective tax rate of just 2.9%.
European finance ministers have already warned the Covid-19 crisis has made tech firms “more powerful and more profitable”.
The Treasury review is due to be completed by spring next year.