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Tax competitiveness

23rd Oct 2014
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The Office of Tax Simplification (whom God preserve) has produced its report on the tax competitiveness of UK tax administration. Sensibly, it starts by saying “there is no magic bullet, there is no philosopher’s stone”. Now most people who sing hymns to tax competitiveness are not interested in sensible: So that will not always go down well says Simon Sweetman.

Why can’t we be number one, they will ask? The answer to that is that while we find it necessary to tax income or profits we can’t. Small countries with large mineral resources (like Kuwait) might be able to do so.

The UK apparently rates 14th on the World Bank’s ‘Paying Taxes’ rankings and we supposedly want to do better. But then the first three are UAE, Qatar and Saudi Arabia so it looks rather like an international index for the exploitation and mistreatment of workers.

There are three components to this – the overall tax rate, the time to comply and the number of payments required: Which does not actually seem terribly sophisticated (and of course applies only to corporate entities). This is all about the taxation of businesses, and unincorporated businesses are little more than an afterthought.

If you just look at the total tax rate the Former Yugoslav Republic of Macedonia comes top, just ahead of Vanuatu. It really doesn’t look like the sort of league you want to come first in.

Now the OTS has looked at this and come to much the same conclusion (I told you they were sensible): There could be a target for being “the best” in the G7, for instance. And of course the prize, they say, is not just competitiveness. The reforms they suggest would save business money (hopefully without simply transferring the cost to the taxpayer). What has happened here is that the OTS, constantly hampered by having to suggest things that don’t cost money and not allowed to meddle with policy, has been offered a task which would have been impossible to deal with within those parameters and has (very genteelly) kicked over the traces.

One very interesting point is that there was no pressure at all for any further reduction in corporation tax rates (which suggests that it is too low: Surely you should not have taxation without any squealing at all). But it suggests that taxable profits should be aligned more closely with accounting profits, that capital allowances might be replaced by allowable depreciation, and that corporation tax on capital gains might be abolished (there’s a planning opportunity). The first two seem to have been suggested innumerable times in recent years and have fallen on deaf ears and the third would provide a massive incentive for businesses to run through corporate structures, which is not necessarily a good idea for small business. Also in my experience high street accountancy firms have a great deal of trouble with the wilder shores of accounting standards already.

Then back comes alignment of income tax and NIC, an excellent idea but one that has been rejected before because it might make people realise how much tax they actually pay and it might involve raising tax on pensioners, which seems to be the final taboo (pensioners vote).

So tax rates are unimportant. Investment in good IT systems is vital: Well, yes but that is presumably what everyone tries to do and very many of them (public or private) get it wrong.

Much evidence was taken. Business likes low rates and no complicated anti-avoidance rules (surprise, surprise). HMRC could improve things by improving its administration with more customer service advisers and quicker call centre response times (but how is it to do this without taking on more staff, which is of course not allowed, they’d only join trade unions or something).

There are many more possibly useful suggestions, some of which may happen one day. But the best thing about the OTS (apart from the fact that many people from all levels give their time for free) is that it is sensible and does not get carried away. Would it be too much for politicians to do the same?

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