Senior Tory MP Sir Geoffrey Clifton-Brown said the current business rates system often taxes companies less able to pay more than bigger firms which have “significantly higher” turnover.
This is contributing to “worrying” decline of British high streets, with more than 8,000 shops closing over the last 18 months and one-in-eight shop units in England and Wales now standing empty.
It came as The Yorkshire Post and its sister titles across Johnston Press launched the Love Your High Street campaign to focus on how to help small businesses.
Business rates are charged on most non-domestic properties and are calculated in line with the value of that property.
This means shops in out-of-town shopping centres often benefit from lower business rates than a town centre high-street store, while online firms often have a much smaller physical footprint and so pay much less.
In a Commons debate late on Monday night, Sir Geoffrey highlighted the unfair nature of the system by pointing out that multinational banking giant HSBC is eligible for relief from business rates on six properties in London are valued at Â£12,000 or less.
HSBC also has the resources to easily apply for the relief, unlike other firms, for which accountants and applying represents a significant cost.
Instead, small businesses should benefit from a “personal allowance” like in the income tax system, exempting them from business rates, Sir Geoffrey said.
“To reverse the decline of our high streets we must ensure that competition is fair in every respect, and if the rates system is making it unfair, we should look at reforming it,” he said.
He said firms should also be given temporary exemptions from rates to encourage them to expand or improve their properties without facing higher bills.
Responding, Treasury Minister Mel Stride said the Government had considered several alternatives to business rates in a 2015 review, including a turnover tax, but concluded that the current system delivers “a stable tax that is difficult to avoid” and raises around Â£25bn a year.
But he acknowledged that the challenge facing high streets is “one of the greatest of our times”, and pointed towards Government measures to cut corporation tax and offer transitional reliefs to the hardest-hit firms when rates were revalued last year.
Mr Stride said: “High streets face a variety of challenges, of which business rates is but one.
“One of the greatest challenges they face is the change in how we are now shopping, with just over 18 per cent of all retail now going online; that presents a huge challenge and that number is likely to increase in time.
“That tells us that high streets will need to transition, reinvent themselves, change and come up with new ways to serve their local communities and drive traffic into our high streets.”
Meanwhile, Thirsk and Malton MP Kevin Hollinrake called on councils to do more to help high streets, including by introducing “sensible parking policies”.
The Tory MP said Malton, which has been repositioned as “Yorkshire’s food capital” was “a brilliant example of how you can change the whole dynamic of a town” and its high street, pointing to investment by the Fitzwilliam Malton Estate in improving the look of the centre and introducing two hours free parking.
“It’s what people want, they want more of a leisure experience than simply a shopping experience,” he said.
Labour MP Lisa Nandy, of the Centre for Towns, backed calls to reform business rates and said small, independent retailers should be given more help.
Towns at the same time should be given the space to “develop their own distinct retail offer, and be empowered and resourced to do so,” she said.