The Association of International Retail (AIR) has submitted proposals advocating for the reintroduction of a tax-free shopping scheme in the UK, citing changes in circumstances and evidence supporting its reinstatement.
The scheme was abolished in 2021 post-Brexit, and in September 2022, former UK Chancellor Kwasi Kwarteng outlined plans to reintroduce tax-free shopping for overseas visitors, which were subsequently scrapped by his successor Jeremy Hunt, citing a potential loss of £2 billion annually.
In anticipation of the Spring Budget this week, AIR highlighted the substantial spending loss incurred due to the cessation of tax-free shopping, particularly evident in the £1.5 billion decrease in spending by non-EU visitors in Europe in 2022. They argue that the UK is missing out on a lucrative market potentially worth £10 billion.
The association contends that reintroducing tax-free shopping would reverse the trend of non-EU visitors preferring continental Europe over the UK for shopping, as evidenced by the disparity in spending levels between the two regions.
Moreover, recent data indicates a worsening situation, with spending by non-EU visitors declining by 28 per cent in Britain compared to 2019 levels, while rising to 198 per cent in mainland Europe. The AIR warns of further losses, particularly from highly price-sensitive Chinese tourists, which could amount to an additional £700 million decline in British retail revenue.
The AIR challenges the Treasury’s initial assumption that tax-free shopping had no impact on international visitor spending, presenting evidence to the contrary and urging the government to reconsider its stance.
These calls for action echo the sentiments expressed in a recent open letter signed by various organizations, emphasizing the negative repercussions of abolishing tax-free shopping on business revenue, particularly in Scotland.
A report by the Centre for Economics and Business Research (CEBR) further underscores the economic benefits associated with a VAT refund scheme, estimating the deterrent effect on two million tourists annually and a resulting £10.7 billion loss in annual GDP.
As the debate intensifies, pressure mounts on the government to address concerns and explore the potential reinstatement of the tax-free shopping scheme to revive tourism and bolster the economy.
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