Bad ideas tend not to die they just replace their PR agents. So it is with this idea that business rates should be abolished and replaced with an online sales tax. Who proposes it changes but the idiocy of the plan doesn’t change.
‘Replace business rates with online sales tax’
The only people who should be in favour of this are landlords. Given the obfuscation that has long surrounded the issue even normally sensible people do.
In a survey of just over a thousand business leaders by BDO, the accounting firm, 84 per cent believed that the rates system should be overhauled.
While business rates — the tax on commercial property — bring in £30 billion a year, the system penalises companies that require a presence in town centres, resulting in them paying considerably higher rates than rivals operating online or out of town.
The leap in digital shopping and lengthy closures of bricks-and-mortar stores during the Covid-19 pandemic have intensified demands for Whitehall to overhaul the way in which it taxes companies.
Here’s the thing. It’s not those companies, not the retailers, that pay the business rates. It’s the landlords.
Further, who pays a sales tax? The consumers, not the businesses. So, the proposal is to shift the burden of taxation from landlords to consumers – and who, other than landlords, thinks this is a good idea?
The point to grasp here is that the person who hands over the cheque is not – necessarily – the person bearing the burden of the tax. Not the person really paying it that is. Given that there are only us humans around to pay taxes then each and every tax must mean that the wallet of some live human being gets lighter as a result of the tax itself. The study of tax incidence – who really pays it – is the study of whose wallet lightens as a result of a particular tax.
For example, for those on PAYE it is the employer that hands over to HMRC the income tax from the paycheque. No one at all believes that it is in fact the employer paying that tax – it’s obvious that the net pay is lower than gross, it’s the worker paying the income tax.
Getting a little more sophisticated many believe that employers’ national insurance is paid by the employer. It isn’t. There’s a certain amount someone is willing to pay to get a job done. If hiring the worker costs more than that then the job doesn’t exist. So, taxes upon employment are in fact paid by the worker in the form of lower wages. This is why taxes upon employment are counted as part of the labour share of the economy, not over in the capital share with corporate profits.
OK, so, business rates. There’s some amount that someone will pay to occupy a building. More than this they just won’t pay. If government taxes that sum – say, a tax of some %ge of the rental value – then that doesn’t change that amount the prospective tenant is willing to pay. Rather, it changes the amount that the landlord gets out of that amount the prospective tenant is willing to pay.
The tax is incident upon the landlord that is, not the tenant.
No, don’t get fooled by it being the tenant who must hand over the cash. Sure, rates are incident upon the cashflow of retailers. But they reduce landlords’ incomes, not tenants’.
We’ve good empirical evidence for this too – when certain areas have been declared business rates free then rents increased to cover the lower rates bills.
Sales taxes on the other hand are incident upon consumers. It’s us ending up paying more for what we buy, we’re the people being taxed. That’s why VAT is classed as a consumption tax, not one on the company or producer.
Landlords pay business rates. Consumers pay sales taxes, So, this proposal for the abolition of business rates and the replacement with an online sales tax is to move the tax burden off the shoulders of landlords and onto those of us peeps out here, the consumers.
And why in buggery would we want to do that? Sure, we can see the landlords’ point of interest here but why would we do it?