TRBusiness is calling on travel retail stakeholders and consumers across the UK to back a campaign to reverse the government’s decision to axe airside tax free sales at UK airports on all goods aside from alcohol and tobacco.
A petition lodged and accepted on the UK Government and Parliament website also urges ministers to retain the VAT Retail Export (VAT RES) scheme after it was announced that tax free shopping for international visitors in UK shops would *end in January 2021.
Only British citizens and UK residents can sign the petition. At 10,000 signatures, the petition will receive a response from the government.
With the UK plunging into recession and unemployment figures rising, the petition is aimed at averting a move that could result in thousands of job losses and prolonged despair for retail businesses including those at airports that are already struggling to survive.
A report by specialist consultancy York Aviation estimates the decision will cost the UK economy £2.1bn in GDP and put at risk nearly 20,000 jobs.
A cross-section of voices including retailers, ministers and trade associations such as ACI World, the UK Travel Retail Forum, Duty Free World Council, TFWA and the Airport Operators Association have lamented the decision announced in a consultation response last month.
According to ACI World, tax free products account for approximately three quarters of retail concession revenues at airports [although this varies depending on the location – Ed].
Should the new policy be enacted, UK airports ‘will be at a major competitive disadvantage’ compared with other European and international airports, to which sales will transfer, says ACI World.
Aside travellers missing out on tax free savings on popular items such as beauty products, reduced retail income at airports could result in higher landing fees to airlines – meaning higher ticket prices to travellers.
Separately, businesses have claimed that the abolition of VAT RES in the high street would mean a hit to high-spending UK tourist volumes and tax revenues as overseas visitors seek out better shopping deals in Europe.
A consumer survey undertaken by tax refund specialist Global Blue among 44,000 international travellers generated more than 4,000 responses, with 62% indicating they would be less likely to visit the UK and 93% revealing they would not shop in the UK and would instead shift their spending to France and Italy.The firm estimates that the abolition of VAT RES could result in an up to £6bn decrease in tourist spending, and an up to £3.5bn loss in tax revenues (4.9m drop in non-EU visitors) in figures acknowledged by the Association of International Retail and CEBR.
This is versus what Global Blue claims would be a hike in visitor numbers of 948,000, a boost in tourist spending of up to £890m and a net gain in tax revenues of up to £276m should the VAT RES scheme be extended to EU visitors.
Around 41 million visitors to Britain (24.8m from the EU) spent £28.4bn in 2019, according to the CEBR based on figures from the ONS and Visit Britain. The VAT rebate was around £2.5bn.
[It is important to note the differing figures on the fiscal and economic effects of the decision to abolish the scheme, which are based on various assumptions. These are understood to be disputed by government. The rebate is understood to have cost the Treasury £521m last year – Ed].
VAT RES ‘COSTLY TO MAINTAIN’
A recent technical note from HM Treasury and HM Revenue & Customs published earlier this month and seen by TRBusiness expands on the reasons for withdrawing the tax free concession as an addendum to the consultation response issued in September [for more detail, click here].
In the note, the government states: “The Government did not have the choice of maintaining the VAT RES as it is today. The choice was between extending the VAT RES to EU residents or removing it completely as World Trade Organisation (WTO) rules specify that goods bound for different destinations must be treated the same.”
While recognising the contribution made by VAT RES to international tourism and retail in the UK, the government says it is costly to maintain.
“In 2019 HMRC estimates VAT RES refunds cost around £0.5bn for around 1.2m non-EU visitors at UK exit points. In 2019, the ONS [Office for National Statistics] estimate there were 1.7 EU passengers (24.8m) for every non-EU passenger (16m) to the UK. This implies an extension to the EU could significantly increase the cost of the scheme by up to an estimated £0.9bn.
“This would result in a large amount of deadweight loss by subsidising spending from EU visitors which already happens without a refund mechanism in place, potentially taking the total cost up to around £1.4bn per annum.”
On the expectation of job losses, the government says it recognises the challenges faced by businesses and is spending billions of pounds supporting people, families and the economy during the Covid-19 pandemic.
Among the support measures cited is the Winter Economy Plan, which includes a 5% reduced rate on VAT and goods and services to the tourism and hospitality industries from 12 January to 31 March 2021 to protect more than 150,000 businesses and 2.4 million jobs in tourism and hospitality.
The government also refers to 100% business rates holidays for many businesses worth more than £10bn and the £1,000 jobs retention bonus.Whitehall says it was initially minded to extend tax free sales to EU passengers as part of the consultation, though it raised concerns on the current operation of the scheme.
Among the concerns were suggestions the benefits were not being passed onto consumers and the system was ‘not consistent with international tax norms’.
It makes clear it could not amend the current extra-statutory concession after a 2005 judgement from the House of Lords that ‘limited’ HMRC’s discretion to provide tax relief through ESC, meaning it could apply to non-EU bound passengers only.
“Therefore, under WTO rules, whereby all passengers must be treated equally, the ESC cannot apply from the 1 January 2021,” continued the note.
“The consultation asked whether the government should implement new legislation to permanently allow this relief and extend it to the EU. In a similar vein to the VAT RES, the choice was between removing the ESC and instead legislating to enable airside tax-free sales to non-EU and EU-bound passengers or removing it completely as a result of WTO rules.
“HMRC estimate that around £150m of VAT is not charged as a result of tax free airside sales. As with the VAT RES, extending the relief to the EU would significantly increase the cost of the scheme and result in a large amount of deadweight loss by subsidising spending from EU-bound passengers which already happens.”
Please sign and share the petition to avert the risks to livelihoods and consumers’ tax-free perks.
You can also join the conversation using: #savejobs #saveuktaxfree #travelretailbacktobusiness #reinventingtravel
*Overseas tourists will still be able to purchase VAT-free items instore for shipment direct to overseas addresses. Duty free, personal allowance and the VAT Retail Export Scheme changes will apply in England, Wales and Scotland.