Study: Internet costs £10 billion in taxes

E-commerce could cost the British government a pretty penny - up to £10 billion ($25 billion) this year alone in lost tax revenue, according to a report issued on Tuesday by the Institute of Directors (IOD).

"Actually, that number is a bit of a stab in the air, but we believe it's between £5 (billion) and £10 billion pounds," said Richard Baron, deputy head of the IOD policy unit. The IOD is a government-funded agency that reports on financial matters.

The lost tax revenue due to shopping on the internet could amount to as much as 20 per cent of the UK's total sales tax income this year, according to Baron.

Traditional forms of tax collection, including the Value Added Tax (VAT) sales tax and corporate taxes, are being bypassed on the internet, he said.

The IOD report warned that government reaction to the issue could have long-reaching effects on both e-commerce and traditional bricks-and-mortar businesses.

"Governments might react to the threat not [only] by increasing tax rates on non-electronic commerce, but by imposing administratively burdensome tax collection mechanisms in an effort to tax electronic commerce," the report warned.

"The result would be to stifle new and efficient ways of doing business, to the detriment of everyone."

Baron pointed to reports of David Bowie's planned internet release of his newest album, "Hours", on September 21, a full two weeks before it will be available for purchase in traditional music retail stores. "What David Bowie plans to do is the perfect example of lost tax revenue due to internet shopping," Baron said.

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