No ground given as yet on UK tax free as govt reacts to TRBusiness petition

By Luke Barras-hill |

As anticipated, TRBusiness’s ‘Keep tax-free sales at airports and the VAT Retail Export Scheme’ (VAT RES) petition for the UK has received an official response from Parliament.

This publication launched the petition in October amid a wave of opposition to the Treasury and HM Revenue & Customs’ Decision to axe VAT RES and the airside extra-statutory concessions next year, with more than 11,700 signatures recorded at the time of writing.

The government said in its response: “Visitors can shop VAT-free when purchases are sent directly to overseas addresses. The withdrawal of the tax-free schemes is part of a package of changes, with significant benefits for UK consumers.

“The VAT Retail Export Scheme and tax free sales at airports largely provide ‘tax-free perks’ to overseas visitors.The government’s passenger policy, after the end of the transition period, provides UK consumers with significant benefits.”

TRAVELLERS TREATED THE SAME

It continued: “To remain compliant with World Trade Organisation (WTO) rules following the transition period, the UK’s VAT and excise rules will no longer be able to treat individuals carrying goods for personal use (passengers) to/from the EU, differently to those travelling to/from non-EU countries.

“The government published a consultation, which ran from 11 March to 20 May 2020. The government held virtual meetings with stakeholders to hear their views and received 73 responses to the consultation. The detailed rationale for these changes are included in the written ministerial statement and summary of responses to the consultation.”

As reported, the campaign to protect the concessions – the removal of which could lead to tens of thousands of job losses and billions in lost tourism and tax free sales – suffered a blow last week in England, Scotland and Wales after the government introduced a statutory instrument formalising the abolition.

Pressure on government to rethink its approach to removing tax free sales has intensified significantly in the past month, with a wave of businesses including prominent brands such as Gucci, L’Oreal Luxe UK, Tiffany & Co, Lalique, Salvatore Ferragamo, Samsonite and Hugo Boss and others vehemently opposing the decision.

Following Chancellor Rishi Sunak’s Spending Review last month, the independent Office for Budget Responsibility (OBR) stated that the Treasury’s tax windfall from axing VAT RES would be £360 million rather than the circa £500 million initially claimed.

‘LARGE DEADWEIGHT LOSS’ TO TREASURY

The government says the OBR’s assessment includes the assumption that around 20,000 – 30,000 fewer tourists will visit Great Britain a year.

Government ministers have branded VAT RES as ‘very costly’ with refunds shouldering the Treasury with a bill of around £0.5 billion for the approximate 1.2 million non-EU visitors that avail themselves of the scheme.

According to the Office for National Statistics, there were around 24.8 million EU visitors compared with approximately 16 million non-EU travellers in 2019 and extending the scheme to the former would cost around £0.9 billion to take the total cost to around £1.4 billion per year.

“The government’s view is that this would have resulted in a large deadweight loss by subsidising spending from EU visitors, which already happens without the VAT RES in place,” continued the response.

“Again, the choice for tax free sales was between removing the scheme or extending it to EU-bound passengers.

“The OBR estimates that the withdrawal of tax free airside sales will result in a saving of around £170 million per year, after behavioural responses are taken into account and passenger numbers recover from the impacts of Covid-19.”

To read the response to the petition in full, click here.

TRBusiness is seeking reaction to this developing story.

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