Still an unpopular move

But this has not been seized, and those opposed to the tax feel that their raised voices have been met with what they feel to be typical arrogance on the part of those holding the power.

Certainly, none of us could argue that this move by the government serves as a new source of revenue.

Set against the backdrop of a large fiscal deficit, it is expected that a responsible government engaged in fiscal consolidation would try to judiciously reduce expenditure while at the same time raise revenues from existing as well as new sources.

It should be clear to the government that there is widespread disagreement with the decision to introduce a tax on internet shopping. Leadership requires some dialogue to justify why we must give up choice and possibly a cheaper source of products. Not only is the tax a source of revenue, some have argued that it can deter purchase abroad and thus save foreign exchange.

This assumes that we produce the sought-after items here. But this can hardly be the case given the limited products that are produced in this country. It means the items will either be bought from abroad by consumers or retailers. If the latter does not hold then we are left with the first argument.

Government decisions do have consequences and can affect investment decisions.

One unforeseen effect of the government’s action to introduce a tax is it can distort investment decisions because it sends the wrong message of support for ‘brick and mortar’ stores rather than innovative distribution systems.

At a time when Warren Buffet has sold 27.2 million Wal-Mart shares last quarter and could sell the remainder of shares he holds in the company this quarter and in so doing get out of the brick and mortar chain of stores suggests that we should take a look at whether we should inadvertently be encouraging brick and mortar investment for retail activity.

The government needs to note that over the past 15 years, Amazon has had a 34%-per-year average return which is way above the 12.9% return for the specialty retail industry. In the US alone adjusted e-commerce sales grew 15.7% last quarter, while total retail sales only grew 2.2%. A similar pattern could be noted elsewhere. This rapid growth in online purchases has led to commerce sales now accounting for 8.4% of total sales, up from 7.4% of sales a year ago. There is all indication that investors such as Warren Buffet have taken note.

We do have a very large retail sector. Charting the direction for the future has to be the responsibility of both the retail sector as well as the government. Introducing distortions in the market can affect investor decisions; this would place retailers at a disadvantage and mean that as consumers we will be forced to pay more with limited variety to choose from.

The government must rethink this decision as it seeks to re-engineer the economy on a sustainable growth path.