By Adam Harper MembersAAT leads successful fight against an Online Sales Tax23 Nov 2022 Collaborative efforts mean the government is now set against its mooted proposalThe Chancellor’s Autumn Statement arrived to much fanfare last week, setting the direction for the Government’s economic strategy and approach for fiscal sustainability.Slightly lost amid the coverage of Jeremy Hunt’s ‘economic reset’ was the news that the Government seems set to decide against its mooted proposal to introduce an online sales tax (OST). It’s a development that demonstrates not only the influence of the AAT, but also how effective we can be when we collaborate with others.The background to AAT’s campaign began earlier this year when the Government, concerned over the health of the UK High Street and the general level of tax revenue, issued a consultation document on its proposal to consider imposing a 2% tax on online sales in order to ‘rebalance the taxation of the retail sector’.We submitted our response in May in which we outlined the pros and cons of such a tax being developed. Having consulted within the Association – taking on input from our digital advisory and tax panels in particular – we felt compelled to raise strong objections to the proposals as set out.We outlined three fundamental problems:A question of definitionRegulation – especially tax regulation – relies on clear, robust and unequivocal definitions. And while some ambiguity is almost inevitable, arriving at a clear and enforceable definition of what would attract an OST would, in our view, be almost impossible. Would the OST come into play based on the method of ordering? Would the degree of in-person interaction matter? What about the timing and location of the sale online? Would click and collect count? In summary, we saw no way in which an effective definition of an online sale could be successfully designed for the purposes of an OST.Exemption confusionOur second objection centred around the issue of exemptions. One of the proposed exemptions centred around business-to-business, an idea that immediately raised our concerns about evasion. Similarly, proposals to limit the OST to UK consumers and exempt overseas purchasers of UK goods and those in the UK buying from abroad seemed certain to undermine the credibility of the OST in the short and long term.Unintended consequencesOur last objection concerned the very real impact that a new OST would have on UK households and businesses, at a time when both are being squeezed. The cost of living crisis, low growth, a post-Covid hangover and persistent inflation are all combining to create what some economists are describing as a perfect storm of economic headwinds. With that backdrop, creating a higher compliance burden for business that would likely pass on to consumers in the form of higher prices would be hard to justify.As a side note, there are some significant environmental concerns around a tax that might encourage consumers back into their cars to save a few pounds on their shopping.Leading from the frontWe felt it vital to take a lead in the campaign against the introduction of an OST; the first professional accountancy body to do so.We were also co-signatories of a letter delivered to the Government outlining the key objections. Alongside major retailers and marketplaces such as ASOS and Currys, we explained why the tax would be unfair and lead to a range of unintended consequences, most of which would negatively impact businesses (both digital and bricks and mortar), consumers and the tax authorities. In doing so we both bolstered the arguments from other voices and amplified our own.This collaboration matters. There’s sometimes a perception from outside that professional bodies such as the AAT don’t tend to collaborate well, and prefer to stay focused on narrow issues of interest, playing it safe and ‘staying in their lane’.However, we were the first professional body to come out strongly and publicly against the proposal because we recognised not only the technical difficulties of introducing a new tax but also the wider impact it would have on the real economy at large. We were therefore gratified by the government’s signalled intention not to introduce it.The success of this campaign proves that AAT can work effectively in collaboration with a broad coalition of disparate stakeholders to affect genuine change. Adam Harper is AAT's Director of Professional Standards & Policy..