Amazon's UK sellers are getting hit with a fee hike next month as the company passes along the cost of a new digital tax aimed at large corporations (AMZN)

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  • Amazon will be raising the fees for sellers on its UK marketplace by 2%, starting in September.
  • The change follows the passing of a new digital services tax in the UK, which levies a 2% tax on revenues of companies that run search engines, social media services, or online marketplaces in the country.
  • The moves shows Amazon is passing along the costs of the new tax on to its small business sellers, and raises questions on the effectiveness of such measures.
  • Visit Business Insider's homepage for more stories.

Amazon announced on Tuesday that it plans to charge more fees to the sellers on its UK marketplace, in response to the country's new Digital Services Tax.

In a note to sellers, Amazon wrote that it will add a 2% fee to all merchants using its marketplace or storage and fulfillment services in the UK region. The new fee will go into effect on Sept. 1. 

Amazon said the fee increase is driven by the passing of the DST law, which levies a 2% tax on the revenues of companies that run search engines, social media services, or online marketplaces, and generate over £500 million in sales. Until now, Amazon absorbed this cost, it added. Here's what the note said:

"In spring of 2020, the UK government introduced a Digital Services Tax ("DST"). While the legislation was being passed, and as we continued our discussions with the government to encourage them to take an approach that would not impact our selling partners, we absorbed this cost. 

Now that the legislation has passed, we want to inform you that we will be adjusting referral fees, Fulfillment by Amazon (FBA) fees, monthly FBA storage fees, and Multichannel Fulfillment (MCF) fees in the UK to reflect this additional cost. We will not apply the increased charges retroactively, but starting 1 September 2020, the above fee types will increase by 2%."

While Amazon is passing along the costs of the new tax to the thousands of small business owners selling on its UK marketplace, it raises questions about how effective such measures are. Amazon made a similar move in France last year when it raised seller fees by 3% in response to the country's new digital tax.

The UK law is aimed at ensuring big companies pay more taxes, as most of their European headquarters are located in tax havens like Luxembourg, and leveling the playing field between them and the small- and medium-sized businesses in the region.

The UK is Amazon's third-largest market in the world, after the US and Germany. Amazon generated over $17.5 billion in sales from the UK last year. 

In a statement to Business Insider, Amazon's spokesperson said the company advocates for a global agreement on taxation, instead of a government-level law that varies by the country.

"Like many others, we have encouraged the Government to pursue a global agreement on the taxation of the digital economy at OECD level rather than unilateral taxes, so that rules would be consistent across countries and clearer and fairer for businesses. As we've previously indicated, the way that the Government has designed the Digital Services Tax will directly impact the businesses that use our services," it said.

No other choice

Still, sellers in the UK are likely to continue using Amazon's services — even if it becomes more expensive — because of its sheer size, according to Tom Baker, founder of FordeBaker, an agency that helps Amazon sellers. 

He said Amazon may become a slightly less attractive option for online sellers, as their profit margins will shrink, but they can't afford to abandon the marketplace given it's the largest e-commerce site in the country.

They can't raise their prices on Amazon either, he said, because doing so could drop a seller's search ranking on the site — or risk having certain products suspended due to Amazon's policy of keeping low prices.

"The size of the pie is just too big," Baker said.

While it's no surprise that Amazon is passing on the cost of the new tax to its sellers, Baker said it's a "missed opportunity" for the company to show support for the small businesses that account for a large chunk of its sales. Roughly 60% of all products sold on Amazon now come from third-party sellers, and the company has been promoting itself as a staunch supporter of small businesses lately as regulatory scrutiny has grown over its market power. 

"It could have been an opportunity for Amazon to make a stand for SMBs and show their support for the backbone of the UK economy," Baker said.

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