A decision to stop some companies from selling VAT-free internet and mail order goods from Jersey has had few benefits, according to a watchdog.
Firms avoid VAT by basing CD mail-order operations in Jersey
A States scrutiny panel report said the policy to prevent companies setting up in Jersey and asking others to leave had lost the island business.
The report added the move had not improved the island's reputation.
Economic Development Minister Philip Ozouf said the decision had been made for the island's benefit.
Under current tax laws, shoppers do not have to pay VAT or import duty on goods brought in from outside the European Union (EU) that cost less than £18.
Larger retailers, such as supermarket giants Tesco and Asda, took advantage of the rules to sell cheaper CDs and DVDs imported from places such as Jersey and Guernsey.
Asda and Tesco said they were merely offering the best deal for customers.
But following pressure from the UK government, and criticism in some quarters of the national media, Minister Ozouf clamped down on the practice following claims that independent retailers were being driven out of business because they could not compete, damaging the island's reputation.
Some companies have been given until next January by the States to change working practices in Jersey or leave.
The scrutiny panel, which was asked to investigate the move, decided there had been a lack of political support for the so-called fulfilment industry.
Panel member Deputy Geoff Southern said the panel decided the decision had not just impacted on UK businesses, but also on local ones.
He said: "At least will two local companies will be closing down, and we believe that Offshore Solutions Ltd, the fulfilment branch of Jersey Post, will be seriously affected."
But Minister Ozouf said action had been taken to try and minimise any losses.
He said: "Job losses for the companies that we have asked to leave are always regrettable.
"But we have also helped every single one of these companies to try to restructure their affairs so they can be acceptable to the trading conditions that we require of them locally."
The report has called for a centralised policy with a leader, or e-commerce tsar, and a code of practice to promote the industry.