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Retail stocks hit amid growing calls for online sales tax

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·3 min read
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Ocado, a British online-only supermarket, is one of the companies that has reaped the rewards of a consumer shift to shopping on the internet. Photo: Getty Images
Ocado, a British online-only supermarket, is one of the companies that has reaped the rewards of a consumer shift to shopping on the internet. Photo: Getty Images

Stocks of online-only retail giants including Boohoo (BOO.L) and Ocado (OCDO.L) were down Monday morning amid news that such companies could be hit with a double tax bill in the UK.

Companies with a strong focus on e-commerce and no physical stores that they have to pay rent for have reaped the rewards of shifts to online made due to the coronavirus pandemic, as restrictions and lockdowns have meant high streets remained shut for months. Even when shops have opened, many have preferred to stay indoors.

According to emails leaked to The Sunday Times, Amazon (AMZN) and tech firms are among companies summoned to a meeting this month, to discuss how an online sales tax might work.

The taxes would aim to plug the black hole in the UK’s finances caused by borrowing to support jobs and the economy amid widespread lockdowns.

The Times said the Downing Street policy unit is also looking to impose an “excess profits tax” on companies that saw a surge in profit as a result of the crisis.

As markets opened on Monday, Boohoo was down roughly 4%, even as news came out that it had snapped up three brands from failed retailer Arcadia. The deal did not include any physical stores, all of which will be permanently shuttered, which means Dorothy Perkins, Wallis and Burton will now be online-only.

Asos (ASC.L) was also down about 4% and Ocado was down 1%. Ocado was also number six in the top FTSE (^FTSE) fallers Monday morning.

READ MORE: Tesco, Waterstones and B&Q bosses warn of high street ruin without business rates reform

Companies in danger of being hit with the COVID-19 windfall tax also include Just Eat (JET.L), which was down about 1.3% and also among the FTSE’s top 10 fallers.

"A possible tax hike aimed squarely at online sales presents a near-term overhang for these stocks, but they remain structurally well positioned to capture more sales as consumer habits continue to shift online,” said Neil Wilson, chief market analyst at Markets.com.

‘’The pandemic has accelerated the shift to digital shopping and it’s been a very painful reckoning for the high street. In this climate, it’s no surprise that the UK government is looking at ways of trimming profits of the digital giants and using some of that money to try soften the blow to the high street caused by the mass shuttering of shops,” noted Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

“It is likely to come up against opposition from some of the big names in retail who are still trying to navigate the tricky balance of supporting a high street presence while accelerating the shift to digital,” she added.

A Treasury spokesman said earlier in emailed comments: “Our business rates review call for evidence included questions on whether we should shift the balance between online and physical shops by introducing an online sales tax. We’re considering responses now.”

Meanwhile, the CEOs of a group of 18 retailers, including Tesco (TSCO.L), Waterstones and B&Q, have written to chancellor Rishi Sunak bolstering calls for the online sales tax on internet companies to “level the playing field.”

The retailers, which collectively represent more than a million employees, said that without reforming the commercial equivalent of council tax, high streets will face an uphill struggle to recover from the COVID-19 pandemic.

WATCH: What UK government COVID-19 support is available?

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