As we all now know only too well, the COVID-19 pandemic accelerated significant trend shifts in the retail sector. Most notably, the focus on online sales and the move away from high street shopping. According to the Office for National Statistics, online shopping increased from 3% in 2006 to around 22% in March 2020. Those figures then continued to increase and in fact accelerated throughout the pandemic, and there is a widespread belief that online shopping levels will remain at all time highs and are unlikely to ever return back down to pre-pandemic levels.

It is widely recognised that high streets are vital to many communities and in response the government has committed to looking at ways in which high streets and physical retailers may be supported through what is a particularly difficult transitional period. One proposal, currently in consultation stage, is the possible introduction of an "online sales tax" which, according to the consultation paper, aims to "rebalance the tax system through funding a reduction in business rates for the retail sector". The introduction of an online sales tax would see the government use the resulting revenue to reduce business rates for physical retailers, to "rebalance" the respective tax burdens. Many physical retailers who are concerned about the tax bills they face as a result of high business rates when compared to taxes paid by their online rivals will be keen to understand how this tax may benefit their businesses. In contrast, if an online sales tax is introduced, this will of course impact on cash-flow and profit margins for online retailers - which many may seek to pass onto customers, ultimately hiking consumer prices.

A copy of the government's consultation paper is available here. The consultation period closes on 20 May 2022 for further consideration.

Clearly, whatever the outcome of the consultation, implementing online sales taxes will not be straightforward. Businesses will question how such taxes will be calculated, how "online sales" will be defined for the purposes of the regulations and how "hybrid" sales (such as click and collect services) will be treated. In addition, the government will need to tread carefully to ensure that small and start-up businesses are not unfairly affected - particularly those with both a physical and an online presence.

It remains to be seen as to whether the introduction of such online sales taxes could help to stabilise the decline of high streets and physical retail stores, although there are of course a number of complex factors that have contributed to and continue to contribute towards this trend. However, the government is quite clear in its consultation paper that the proposed tax is not intended to actively encourage customers to shop in-store rather than online.