Jonathan Swift and Tax Simplification (Should We Scrap the Lot and Start Again?)

Around 300 years ago, the author of Gulliver's Travels Jonathan Swift showed his wisdom and foresight by prefiguring the current debates about tax simplification.

In language that will mean a great deal to most practitioners, the Irish priest and satirist second-guessed the problems that now face anybody trying to become an expert in a field requiring understanding of legislation such as tax.

He said "If books and laws continue to increase as they have done for fifty years past, I am in some concern for future ages how any man will be learned, or any man a lawyer".

It is a pity that no Chancellor of the Exchequer in the last 50 years has apparently read the wisdom of Dean Swift. Otherwise, there might be no need for an Office of Tax Simplification, which would have freed up some of my (not very) spare time, though also taken away a unique and rewarding experience.

In reality, it is not just those in power that have caused tax legislation to grow like Topsy. At times, it feels as if the legislators and certain elements of the advisory community are waging their own small-scale equivalent to the Cold War.

This form of nuclear arms race starts when, either reasonably or otherwise, the Government or the Inland Revenue/HM Revenue and Customs decides that some piece of extremely artificial tax avoidance constitutes abuse or evasion.

They then naturally introduce anti-avoidance measures that are designed specifically to cut out the perceived evil. In doing so, they usually hit their target but quite often the fallout is so great that millions of innocent taxpayers find themselves with higher liabilities despite having done nothing wrong at all. And that was happening before the recession to end all recessions.

This undesirable situation might beg a question or two about tax and morality. Is it really acceptable that the efforts of a few superstars of the tax avoidance industry which lead to a great deal of work for themselves and, to be fair, smaller amounts for the likes of your columnist should harm vast swathes of the community?

The point here is that while the few are making their clients wealthy (though many recent court cases are proving that statement to be incorrect) by seeing how flagrantly they can bend the rules, others are merely sorting out the consequences for the bystanders caught in crossfire.

Having reached this position though, it is very hard to see how it can be resolved amicably although perhaps it is time for a round table meeting between the parties with a view to reaching a more acceptable position.

Even so, it is hard to believe that with a little bit of will on all sides there could not be a 10%, 20% or even 50% in the volume of tax legislation without any disastrously adverse consequences. It would be a real fillip to see someone trying to achieve this. Perhaps it this could prove a suitable political legacy for that nice Mr Gauke, although perhaps he has greater ambitions?

There is another obvious answer to all of this, which is a complete overhaul of tax legislation. While we have had rewrites in recent years, the last major change occurred in 1965 and another is long overdue.

A couple of weeks ago, one of those ubiquitous think tanks suggested that a flat 30% rate of tax would solve all of our problems. In fact, it seemed to be a perfect answer for those that the think tank had been set up to support but at a cost to everybody else.

In effect, if implemented their plan would have exactly the same result as HMRC's ill-directed nuclear bombs such as the charities tax, granny tax, disguised remuneration and so many others.

It is hard to believe that if the legislators scrapped everything on the statute books and started from scratch, they would come up with our weird and wonderful collection of taxes or the complexity that they entail.

However, perhaps we should not wish for something that could have unintended consequences. An obvious solution would be the introduction of a wealth tax to join a combined income and corporation tax and VAT, while scrapping NIC, CGT, IHT and several others that most of us haven't even heard of.

BEWARE – this may sound good but in order to balance the budget if this were to happen, the rates of the remaining trio of taxes would undoubtedly be terrifying.

The alternative would be to see every dustbin in the country overflowing, the few remaining schools and hospitals bereft of staff and poorhouses reopening.

Comments

Why "BEWARE"

Wiganer Elaine | | Permalink

The dustbins are already overflowing in parts of the country; education and health are again part of a postcode lottery; the quality of staff who work in these areas ranges from the "sublime to the ridiculous". As for the welfare state as it is today - it is driven by people's wants, expectations and their rights - there is no corresponding duty and responsibility! In fact, the "D" and "R" words are gradually becoming archaic expressions of a bygone age!

The tax system we have is in a desperate state but we need to have a clear idea of the principles by which we would like to live and all rules be made with those aims in mind!

 

Basis...

angehodgson | | Permalink

Surely, in a global age, the solution is also global. If media reports are to be believed, there is a perception that some multinationals are avoiding their tax responsibilities: benefiting from national infrastructure, an educated and health workforce etc., but apparently not contributing sufficiently towards that infrastructure. If that is the case, then domicile as a basis for taxation is no longer fit for purpose.

I know I've said it before, but what the hey. If we accept the premise that in a multinational age, a multinational solution is appropriate, then how about "participation" as a basis for taxation? If a business participates in a particular market (for the sake of argument, the UK), then tax is due on UK sales less UK costs. Head office costs? Apportioned on the relative sales value.

Winners? Most national exchequers. Losers? Those territories more commonly known as "tax havens" and the multinational accountancy firms and tax lawyers. Is that really such a bad trade-off?

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