Potential developments in tackling the unintended consequences of online trading.

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Although not directly related to any specific tourism issues the ongoing Public Accounts Select Committee inquiry in to “VAT fraud and error”, launched last week may prove to have some interesting implications and generate some potentially transferable lessons for tourism, or at least that’s my initial assessment based on what I have seen and read so far.

The inquiry was prompted by a National Audit Office report published in April that estimated that up to £1.5bn was being lost annually to online market place VAT fraud and error. It relates mainly to a relatively narrow but burgeoning circumstances where UK online market places sell goods for non-EU international businesses; goods that have already been shipped to and are stored in the UK , thus, making their deliver as competitively quick and easy as those being sold by UK based companies.  The only difference is the location and legal status of the sellers and in some instance even goods are the same, having been made by or purchased from the same overseas manufactures.  In the case of Amazon (and others?) they are not only selling these goods on behalf of a third parties but they are also very often storing and fulfilling the entire transaction, from order through to payment to the seller from their own Amazon premises.  It may therefore be open to debate as to where ownership and liability for the sale and attached legal duties should in future rest?

The specific problem, however, is that some of those non-EU businesses selling pre-positioned goods are not registered for, or are but are not paying some or all of the UK VAT due; either in ignorance, by error or by way of deliberate avoidance, all of which reduces UK Government’s revenue and creates damaging, unfairly competition for the trade of compliant, UK online (and High Street) business that are charging and paying 20% VAT.  There was also some mention of associated concerns about facilitating the sale of counterfeit and unsafe goods, although I suspect that is largely peripheral to the specific issue of pre-positioned goods.   More on the background to the inquiry and the NAO report can be found at: http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/inquiries/parliament-2017/tackling-online-vat-fraud-error-17-19/

At the heart of the last week’s debate was the unintended consequence of the innovative and rapidly expanding business models of the major online market places and, specifically, the degree, if any, to which they now should or should not be held responsible for voluntarily or mandatorily helping to rectify, some or all of these issues.  It is clear that the major online market places are already cooperating with HMRC to an increasing degree but the inference from HMRC’s evidence, as I read it, is that they could and probably should be doing more?

The likes of Amazon and EBay (who gave evidence last week), not unreasonably, would argue that it isn’t their job to police the UK’s import and tax systems for Government.  The counter perhaps is that having created a new trading environment on such a scale, at such a pace, they surely have a  moral if not a business reputational duty to  proactively help tackle the unintended opportunities for abuse that accompany any such unprecedentedly large market place developments?   It was interesting to note that this is by no means a unique UK problem and also notable that the experiences in other jurisdictions were being actively examined and potentially even embraced, rather than being typically rejected outright as irrelevant to UK circumstances.

So what’s the potential tourism connection?  Currently tentative but the principles and practices that might emerged from this inquiry could have direct application to, or inform the direction of policies in those areas where similar burgeoning online marketing innovations are having potentially negative, direct and indirect impacts on tourism, tourists, residents (host communities), destinations or on other existing tourist businesses.  From inquires these include: lost personal and business taxation, VAT and business rate revenues, impacts on appropriate, planned or authorized use of housing stock, detriment to local residential areas or conversely poorly located tourism assets (poor product), implications for compliance with fire and electric safety and food hygiene,  for liability and property insurance (for the properties concerned and for neighbouring properties), for levels of mortgage and housing benefit fraud, for engagement and contribution to cooperative destination management and market activities and for unfair, damaging competition with other compliant, online and more traditionally based tourism businesses.

Online platforms are undoubtedly making a hugely positive contribution to the industry, in particular by bringing a wide range of new product and accommodation stock to the market place, a lot of it in peak periods or in places where levels of more traditional accommodation stock have not previously been available.  It would appear that many of the issue experienced are associated not with small scale, part time operators that many of the platforms were originally designed for, but with an increasing switch to larger scale, multi property, full-time businesses that can, if they so wish, avoid some of the liabilities normally associated with the true scale of their business operations.

As with online market places, in the exponential expansion we have experienced there are all manner of negatives and loopholes unintentionally created that can and will sadly be exploited until such times as they are tackled head-on.  Similarly it wouldn’t be unreasonable now to look to the major player in online tourism for their active cooperation and their direct support for efforts to remove the opportunities for some of the worst excesses.  In many cases the solutions may lie with them being willing and able to share the information they already hold on who is doing business where and when, with the appropriate National and Local  Government Authorities and Agencies.  It may not be their job to police legal requirement but providing key information to allow those that are charged with that role to do it simply and efficiently could go an awfully long way to help.

Unlike the online market places and the sale of goods, online tourism has a unique vested interest in ensuring the products (communities, places and properties visited) are all enhanced by the experience.  If the host communities and/or the customer’s fall out of love with each other, then the online business models start to fail and that is in no one’s interest.

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