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Scotland debates independent tax system

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27th Nov 2013
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Taxes in Scotland could rise by £1,000 per person per year if it leaves the UK, the British government has claimed, after the Scottish government published its white paper on independence this week.

But according to one expert, the tax system of an independent Scotland would most likely be similar to the current one run by Westminster.  

Danny Alexander, the Liberal Democrat Chief Treasury Secretary, said Treasury analysis suggested millions of taxpayers would pay more if Scotland voted for independence in next year's referendum.

In a letter to first minister of Scotland Alex Salmond, Alexander wrote that the Treasury calculated an 8% increase in the basic rate of income tax would mean an increase of £1,000 a year for those on the basic rate.

The Scottish government dismissed the figures and said that an independent Scotland would create a more prosperous and fairer society. 

But a recent paper by the Institute for Fiscal Studies said that an independent Scotland would need to raise taxes, cut spending, or both, by more than plans already announced by the UK government to create a sustainable economy.

Elspeth Orcharton, director of taxation at ICAS analysed the tax promises in the Scottish government’s tax proposals outlined in its 670-page paper on independence for AccountingWEB.

“In general the white paper promised a system quite similar to the status quo,” Orcharton said. “The future potential for specific allowances and reliefs is no different from those discussed or implemented by Westminster.”

Earlier proposals to reduce the rate of corporation tax (CT) by 3% have been watered down to independence “offering a timetable to a reduction of rate by up to 3%”, Orcharton said.

Europe plays a large role in the area of taxation, Orcharton added, saying that about 20% of tax revenue in Scotland comes from VAT and the right to charge or recover this in and independent Scotland would depend on EU membership.

How would a tax system for an independent Scotland work? This could create problems of dual governance and accountability to two Parliaments, difficulties in adjusting HMRC systems and lack of agreement on the additional costs of a tax system in.

In 2012, the Scottish Government and Scottish Parliament Finance Committee considered these matters as part of a review into a possible devolution of Stamp Duty Land Tax (now land and buildings transaction tax).

The Scottish government dropped the proposed tax changes. That could mean a future Scottish government will have to make some tricky decisions on tax.

Of the AccountingWEB readers who commented on Scottish independence, a majority appeared in favour of an independent Scotland.

Exceljockey wrote that he thought an independent Scotland could be better for Scotland and the UK. He doubted whether an independent Scotland would have a big impact on the accountancy profession.

“[ICAS] currently have their own highly regarded institute and I am sure accounting policies would mirror those of England as the trend is for international convergence.”

Nigel Burge wrote: “Unless you confine your conversations to the Glasgow area and/or believe the opinion polls which are weighted using results from the Westminster election, you may be surprised that more and more "real" people are deciding that Scotland would be better off deciding its own future rather than leaving it to a Government some 600 miles away.”

Others, such as Neiltonks, whether the questioned whether the voting eligibility in the referendum was fair.

“Giving the Independence vote to whoever happens to live in Scotland at a point in time, regardless of their own background, seems a strange way to decide whether to create a 'Homeland' for the Scottish people.”

“Many people of Scottish birth who currently live elsewhere in the UK won't get a vote while people from elsewhere in the UK who happen to be living (even transiently) in Scotland will get a say. As a consequence many Scots will be excluded and many English people will be included. It's an odd sort of self-determination!"

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By the_Poacher
27th Nov 2013 19:45

No surprise really
With an relatively unhealthy population and more generous health and social care provisions north of the border an independent Scotland would have to significantly increase taxes. Us folks in England won't be subsidising you post devolution.

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