U.K. Parliament Debates Tax-free Shopping for International Visitors

LONDON — A parliamentary debate around the reintroduction of tax-free shopping for international visitors to the U.K., a hot issue for luxury retailers in particular, was held on Thursday.

The debate was the result of a campaign by the Association of International Retail and New West End Company, which oversees hundreds of retail and hospitality businesses around Regent and Oxford Streets.

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Parliamentary debates such as these are significant as the government has to take what is said into consideration, and issue a formal response.

Sir Geoffrey Clifton-Brown, a member of Parliament, opened the debate and argued the retailers’ case during the 90-minute session attended by around 50 parliamentarians.

“We are now the only major European country that does not have tax-free shopping, and the British economy is missing out as a result. In fact, the United Nations World Tourism Organization parameter shows Britain’s post-pandemic visitor number is the worst among major European nations,” he said.

Until now the U.K. Treasury has argued the scheme would cost the country 2 billion pounds a year in lost tax revenue, which Clifton-Brown believes is “inaccurate, out of date and based on a wrong methodology.”

He argued the scheme would actually benefit the British people. Citing a recent study by Oxford Economics, he said the restoration of tax-free shopping would create 17,000 new jobs across the U.K., potentially add 4.1 billion pounds to GDP, and contribute 350 million pounds annually in tax revenues to the Treasury.

Nicola Aiken, the MP for the Cities of London and Westminster, which represents central London and the City of London, added during the debate that International visitors are “the lifeblood” for businesses in areas like Knightsbridge and the West End.

She said there are more than 4,000 high-end retailers in her constituency, which employ about 55,000 people.

She noted that visitors from India and the Middle East consistently list shopping as the number-one reason for visiting London, according to Visit Britain. However, visitors from these areas also stated that the tax rate is a consideration when they decide where they want to travel, and to spend their money.

“I also stress that many of the luxury brands that shoppers love to buy in shops in my constituency do in fact have factories based in the U.K., further creating skilled jobs and supporting great British manufacturing. For example, Burberry hand makes their iconic trench coats in Castleford, Yorkshire,” added Aiken.

She also believes that giving international shoppers tax breaks is “a perfect example” of how cutting taxes can increase spending. When visitors know they are getting VAT money back, they end up spending more on hotels, restaurants, entertainment and other tourist attractions.

According to Aiken, London is lagging behind Paris in terms of tourist spend due to the absence of tax-free shopping.

“U.K. international arrivals are down 22 percent since 2019. However, France’s number is only down 12.7 percent. I suspect one of the reasons for this discrepancy is because EU countries still offer tax-free shopping, and I also think that the French actually improved their tax-free shopping offer for international visitors once we got rid of ours,” following Brexit. “We also know these visitors are spending less in the U.K. In 2022, spending by U.S. visitors, for example, was 101 percent higher than in 2019. France saw 206 percent growth over the 2019 level. That’s why we must do all we can to make sure London remains the number one destination for international visitors,” said Aiken.

In 2021, in the wake of Brexit, the Conservative government scrapped the scheme that allowed international visitors to claim back 20 percent value-added tax on goods purchased in the U.K.

The move was a major blow for big fashion and luxury retailers, some of which had set up tax-free offices inside their stores, where customers could complete the paperwork.

Before the pandemic, the tax-free operator Global Blue had even opened a VIP shopping lounge on Albemarle Street catering to Chinese customers in particular.

Over the past two years, brands including Burberry, Mulberry, Boodles, and Value Retail have all joined the growing chorus of voices calling for the tax-free scheme to be reinstated.

Some companies have put their case directly to the Treasury while others have criticized the “tourist tax” during their quarterly results presentations. Others still have taken the issue straight to Prime Minister Rishi Sunak.

In April, Burberry chairman Gerry Murphy told Sunak the scheme was a “spectacular own goal” that had made Britain the “least attractive” shopping destination in Europe, according to British press reports.

Data released by the New West End Company ahead of Thursday’s debate showed that the absence of tax-free shopping has negatively impacted London West End businesses in particular.

New West End Company’s survey of retail, hospitality, leisure and F&B businesses in the district found that nine in ten respondents have been affected by the loss of the VAT Retail Export Scheme. The survey also revealed that businesses were taking proactive measures to mitigate the impact of tax-free shopping. More than half confirmed they were reviewing future U.K. investment strategies. A similar number said they were reconsidering staffing requirements to manage costs.

Some 72 percent of respondents reported a fall in the overall number of visitors since the scheme was shut down, while 89 percent reported a decrease in spending by international visitors. In addition, 42 percent said their average transaction values had fallen.

Dee Corsi, chief executive officer of New West End Company, said, “The Treasury has the opportunity to reinstate tax-free shopping, with a net positive effect on government tax revenues, and providing a much-needed injection of growth into the economy. It would encourage businesses to continue to invest in the U.K., safeguard existing jobs, and create a more competitive trading environment.”

As Britain is no longer part of the European Union, “it would also put us in the unique position of being the only major European shopping destination for 450 million European residents to shop tax-free, potentially opening up a whole new tourism market,” Corsi added.

Mairéad Warren de Búrca, managing director and head of indirect tax at the consulting firm Alvarez & Marsal, commented ahead of the debate that “if the chancellor [head of the U.K. Treasury] is looking for an easy way to boost growth, he should look no further than reintroducing tax-free shopping for international visitors. The VAT discount is already in place across Europe, meaning British retailers are losing out in the race to attract big-spending international tourists.”

She noted that reimplementing tax-free shopping, even if it has restrictions for EU citizens, would be “a win-win” for the government and the retail sector.

“When tax-free shopping was removed post-Brexit, it had a detrimental impact on retailers but also hospitality businesses like hotels and restaurants, who had previously benefited from international shoppers choosing to shop in British cities over other international destinations.…It would be very easy to implement for the Treasury and there are no real obvious downsides to the retail sector,” she added.

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