Corporation tax: The case for reform?

Tax editor, Nichola Ross Martin considers some tax reform measures put forward at the Association of International Accountants' last week:

Having given CGT the hatchet treatment, corporation tax (CT) could be next on the list for some radical changes, maybe.

Continued...

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Comments

I broadly agree with Nick

Anonymous | | Permalink

but isn't part of the argument that if you have a low(est) rate of CT companies will elect to pay tax here so although the rate goes down the revenue stays the same as more profit is declared here? (and tax take may even rise)

IMHO what the current encumbants fail to grasp is that the higher you tax people, and the more unfair that tax is seen to be - coupled with reckless spending of that tax, the more people (and co's) will seek to avoid (and evade) that tax.

As they say, less is more!

Of course, what we really need is to scrap the whoole system of tax and government in this country and start again with a clean sheet. Hundresd of years of tweaking and adjusting have left us with a Heath Robinson system which has turned completely inwards and sees itself as being served by the people, rather than serving them.

Stephen,

nickja | | Permalink

am I alone in finding proposals for lower CT rates somewhat simplistic if they don't add proposals for how the govenment replaces the lost revenue?

When proposals for replacement are made, they seem usually to revolve around increasing VAT or other solutions that hit ordinary working people hardest, ie more for business without any corresponding obligation to distribute any of the tax savings to working people to offset their extra tax obligations.

Finally, what business is said to want is often not the best solution, as recent financial debacles have so clearly shown.

No Enthsiasm for Lower CT Rates or Tax Transparancy?!

Stephen J. Herring | | Permalink

I will leave it for Richard (M) to make assumptions about what an audience wanted but we have plenty of hard data, gathered independently, which strongly supports both fundamental corporation tax reform and lower corporation tax rates. This is overwhelmingly the mainstream - and, in my opinion, correct - viewpoint.

It was announced only yesterday that Sweden is to reduce its main CT rate from 28% to 26%, undercutting the recent UK reduction.

The real world is that CT rates are reducing in almost every developed (and developing!) country.

HM Treasury and HMRC need to accept this and that the UK will become a less atractive business location if we do not respond. Lack of action on CT rates will only appeal to refugees from the 1960s.

I like radical idea, but not radical enough

Anonymous | | Permalink

All taxes need reform

Maybe it is time to go public with my radical idea? I have been mulling this approach over, my way would be thus:

Abolish cash, a system such as oyster cards could replace it, that you top up at the "cash" machine for day to day spending.

The banks would collect and pay over a % of every transaction in or out of a bank account (like credit card charges).

These would be paid over monthly to the treasury.

No need for most other taxes.

Government spending on tax compliance and collection etc could be slashed. And if VAT went, imagine the savings on VAT fraud! - leaving the customs officers free to concentrate on border control!!

I have tried to get figures together to try and work out what the % would be but haven't had the time for hard research. Working on my own tax bill against funds flow it would be less than 5% and looking at a client company with £1.8m turnover it would be less than 1.5%! Looking then at the Tesco 2008 figures their UK tax was barely over 1% of their UK funds flow - based on this very limited straw poll I reckon max 3% would do it, combined with public expense savings you should be able to abolish CGT, IHT, Stamp Duty and VAT as well as IT, CT and NI! Tesco would be chipping in <£1.5b extra for starters.

At the end of the day, the government needs an amount of money to spend and it must get it somewhere. this way it is spread evenly over everyone as there could be no avoidance; limited scope for clever schemes for the big companies to avoid paying taxes (paying direct to overseas bank without declaring would be serious evasion, so Tesco couldn't rig their tills direct to Switzerland)

Everyone would know where they stand, no panic trying to pay the balancing payment just after Christmas - what you get is what you can spend.

Downside, massive public sector unemployment and no jobs for financial accountants (me!), plus, will there be any banks left to run it soon? Haven't got to grips with solving these , but at least everyone could concentrate on running their business rather than worrying about tax and the cash flow would be so much smoother. Imagine, you could just pay your staff - no worrying about employed/self-employed status - and no VAT returns!

This is a form of Torbin Tax

Anonymous | | Permalink

Hi Old Greying Accountant,

It is not radical, and it can worked BUT if there is an IT failure (as with Oyster), then all of us may just get a bit stucked.

But of course, with government record in handling data, this can potentially be a serious issue ad now it holds information about every transaction in the country but had been almost incapable of keeping them secure.

In fact Singapore government is comtemplating doing this as well.

Another proposal would be Swiss style tax according to several times implied rent of properties in UK (and at the same time outlaw foreign trust or foreign corporation owing those properties. So property need to be owned by UK companies, UK on shore trust or directly by an individual ).

Of course, this may run foul with old pensioner who live in million pound house but no longer have the income to pay for it (which then the tax can perhaps be rolled up and secured against the property, securitised (!) and government sell those chunk off to raise cash immediately)

richard.murphy's picture

Brazil tried it

richard.murphy | | Permalink

Brazil tried what the Old Greying Accountant recommends

It worked, very well.

Too well. Those who preferred the opportunity to abuse (let's call them those with wealth, and the financial sector) have no blocked the tax

It's not a panacea: it did not replace all tax in Brazil. The poorest need protection by credits. But this is not a mad idea, at all

Richard Murphy

Too radical?

Antony Rose | | Permalink

Old greying accountant - you've just put the tooth fairy out of business...

richard.murphy's picture

There are no simple solutions

richard.murphy | | Permalink

Two important messages that were agreed upon during the evening

1) There are no simple solutions. Flat tax, turnover taxes and all that go with them are simple misleading ideas: in a complex world we will get complex solutions, and that's just fine. We can handle it, and we need it.

2) There was no enthusiasm at all from the audience for Stephen's ideas. To say that they and the right wing rhetoric with which he delivered them sunk like the proverbial lead balloon is an understatement.

I offered real simplification for smaller business and a way to ensure governments like that of the UK are not abused by large business. I was astonished (candidly) at how popular this was with the audience, something the above report fails to note, but which Mark Lee, has for example done.

Richard Murphy

dialm4accounts's picture

Percentage of turnover

dialm4accounts | | Permalink

Wow - what an idea.

That would sweep away so many complications (tax-deductible or non-tax-deductible expenses, capital allowances, etc) all in one fell swoop.

Would you envisage different percentages for different trades, like the VAT flat rate scheme, based on the fact that some trades "take home" more of their turnover because their margin is bigger?

M

A different line of thought for reforming

Anonymous | | Permalink

I haven't thought this through too much!

What about charging corporation tax as a percentage of turnover rather than profits - this would simplify everything and could probably be paid quarterly

No thanks to complex proposal

Anonymous | | Permalink

Ricahrd proposal is complex and involves a lot of subjective determination of issues (similar to those discussed in the income shifting debate here sometimes ago) (As he wrote here http://www.taxresearch.org.uk/Blog/2008/09/11/getting-the-message-across/) and he wanted the Comissioner as the final arbitrator of any dispute (closing the court routes). I don't think this is acceptable.

In fact, a flat rate of tax with no deduction (capital allowances etc) (other than cost of goods/service provided) would solve most of the problems that Richard's complex scheme will solve.