Britain's digital levy has "failed" in getting the likes of Amazon to pay more into UK coffers, and ministers must "go back to the drawing board", MPs have said.
The comments follow a report in the Times that officials had admitted that Amazon would not be affected by the new digital services tax. Instead, Amazon will pass on the levy to small traders who use its online marketplace.
Dame Margaret Hodge MP, the chair of the APPG on Anti-Corruption & Responsible Tax, said this was a sign the tax was "full of loopholes".
"The Treasury must go back to the drawing board on the digital services tax so that we can properly tax tech companies like Amazon and create a fairer system for high street businesses," she said.
Her comments were echoed by Damian Collins, the former chairman of the DCMS select committee, who said the levy had been brought in to "try to make up some of the tax that should be paid" by the tech firms.
"It will have failed if this is how it is applied, and if anything it will have made the situation worse for smaller businesses."
The Housing, Communities and Local Government committee is expected to look again at the need for an online sales tax as part of its enquiry into the Covid-19 effect on the high streets, chair Clive Betts said on Wednesday.
"You have to raise some money at some point, and an online sales tax does seem to be one option you should consider. There's very clear evidence Amazon pay a fraction of business rates that high street retailers pay, and it has to address this."
Amazon earlier this year had said it was making the move to pass on the digital services tax onto sellers on its site after having consulted with the Government "to encourage them to take an approach that would not impact our selling partners".
After it was legislated, however, Amazon said referral fees, storage fees and fulfillment fees would increase by 2pc in the UK to reflect this additional cost.
The tax does not apply to products Amazon sells itself on the website, as it only applies to revenues where Amazon acts as an intermediary between buyers and sellers. The digital services tax also applies to advertising revenues gleaned by social media and search engines, and Google and Apple have also said they would be passing costs on.
The latest uproar over the tax comes in the middle of Amazon discounting event Prime Day, which critics had warned would weigh heavily on high street stores with a smaller online presence.
The British Independent Retailers Association (Bira) this week urged consumers to support small businesses, saying their custom was needed "more than ever".
When the idea was mooted by then-Chancellor Philip Hammond, he had said the tax would be "designed to ensure it is the established tech giants rather than the technology startups which shoulder the burden". It had been expected to bring in £500m annually to the exchequer.
Amazon paid £293m of taxes on sales of £13.73bn in the UK last year. It does not break down its profits for the region.
A spokesman for Amazon said: "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."