Opinion: the trouble with the tourist tax

OPINION: The trouble with the Tourist Tax

Rebecca Butler investigates the practical implications of the Tourist Tax on luxury jewellery retailers, with insights from Frost of London director, Dino D’Auria

A long time ago, in a world blissfully unaware of COVID-19, when the UK remained a key player in the EU, overseas visitors could instantly claim VAT rebates.

The tourism trade was booming, with visitors far and wide travelling to the UK to make the most of luxury buying, secure in the knowledge that 20% VAT would be back in their pockets at the border.

However, Boris Johnson scrapped the scheme as part of the Brexit agreement of January 2020 and luxury retail and tourism has been struggling ever since.

With the scheme no longer on offer, shoppers are now choosing to splurge in other locales, where countries continue to offer VAT rebates and shopping is, essentially, 20% cheaper than in the UK.

Even British shoppers can benefit by hopping over to European cities – such as France – to purchase high value goods, including fine jewellery and luxury watches.

Both retailers and suppliers have been engaged in a battle to encourage the government to reinstate the scheme for the past three years – to no avail.

VAT rebates were set to be reintroduced by the short-lived government under Liz Truss as a way of stimulating the economy, but the idea was abandoned by Rishi Sunak when he took office.

The Daily Mail added pressure on Monday 24 April 2023 with the launch of the ‘Scrap the Tourist Tax’ campaign, which saw 90 leaders from across the luxury retail, hospitality, and tourism sectors sign their names against an open letter to the Chanceller, petitioning for rebates to be reinstated in order to encourage a much-needed boost in the economy.

The news outlet even published research showing that a reinstatement of the scheme would bring in an additional £4.1b to the UK economy in spite of the initial VAT losses, but Sunak’s government will not budge.

While the battle continues to rage at the top, luxury retailers on the high street are tackling consistently low footfall on a daily basis.

Independent, luxury jeweller Frost of London has witnessed this shift first hand.

Company co-founder and director, Dino D’Auria told WatchPro’s sister title, Professional Jeweller: “Having owned a business in Mayfair for over 15 years, I am stunned at the shocking decision not to allow VAT refunds for tourists. Not only did it bankrupt numerous tax-free companies overnight, but also their many employees, whom I had known for years – some with over 30 years of loyalty to their respected company.”

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Dino D’Auria, co-founder and director of Frost of London

The decision to remove rebates simply doesn’t make sense to the Frost of London team, D’Auria has “racked [his] brains trying to understand the logic behind it, conversing with fellow business people and ex-government officials,” but he still cannot understand the reasoning for the decision. “Every Avenue doesn’t add up, and this decision just can’t be justified.”

D’Auria reports that Frost of London was “lucky” last year, as clients had already scheduled trips to the UK before fully understanding the changes to legislation.

Now, Frost of London’s clients are acutely aware of the money that they will be losing by choosing to shop in the UK, rather than in Europe or America where VAT rebates are still on offer.

“This year’s footfall has been terrible, and any returning clients are just enjoying London’s sightseeing and hospitality,” explains D’Auria. “They are grabbing the Eurostar over to Paris, buying all their luxury goods and collecting their tax back on a convenient app or from the equivalent of an ATM at the station on their return. Global retail prices are generally the same (bar currency exchange rates), so we are now positioned at 13-16% more expensive than global competitors.”

The reality remains that low footfall means low revenue and the majority of businesses – luxury or not – simply cannot cope post-COVID with such a dramatic loss of clients.

D’Auria adds: “Companies are closing left, right, and centre, and still nothing is being done – to the amazement of both myself and many others. Even huge companies like Wempe have just left the UK. I would love to ask Rishi Sunak about his reasoning and logic. No remorse is shown for UK businesses who are still paying PAYE, VAT and Corporation Tax.”

Although Sunak may have his own plans in place for the long-term future of rebates, such as a digital tax system, D’Auria is calling for immediate action to alleviate the pressure placed on luxury retailers – particularly those situated in the capital where footfall used to be at its highest.

“If they are waiting for a digital tax system, they should at least reduce VAT in the UK – or even abolish it – until they figure out the logistics,” says D’Auria. “We’ve reduced VAT in the past, and it’s helped. But I see no olive branch or attempt to empathise with business owners that have risked everything for the UK. They need to act quickly before more businesses close!”

With UK residents struggling under the extreme weight of the cost of living crisis and domestic shopping continuing to drop, a practical solution needs to be enacted by Sunak’s government imminently to save businesses across the country.

The recovery of the UK economy lies in the hands of our valued tourists and overseas visitors, if only we could encourage them to come back.

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