Shouldn’t transport tax be an even keel?

The Glorious 12th was a good date to send out a press release on the tonnage tax, wasn’t it? You didn’t notice it? Nor did a lot of people, which I suspect was part of John Prescott’s planning: ‘Let’s get this sorted out while Gordon is away – he won’t mind since this way is far more subtle than trying to bury it among those reams of Budget press releases.’

As one of those sad people who not only buys a newspaper but also reads the financial pages while on holiday, let me bring you up to date. Ships registered in the UK will no longer have to pay corporation tax based on their profits, but merely a ‘tonnage tax’ or flat-rate tax based on their size. Lord Sterling of Plaistow, P&O chairman, reportedly called this ‘the biggest boost to our shipping industry in the last 20 years’ and said it would ‘make the UK competitive again’.

Sounds like a jolly good idea – boosting British industry and jobs, and all for an estimated cost of only £40m to the Treasury.

The trouble with giving one child a biscuit, as any mother will tell you, is that a dozen others are likely to clamour: ‘I want one too – it’s not fair.’ Here we have a concession, says the UK government, which benefits one industry and has no other justification than if we didn’t do this, jobs and trade would be lost to us.

Oh, and by the way, the Dutch did it last year, so it must be alright.

Despite the Autumnal nip in the air, it is still August and the silly season has not yet ended.

So I thought I would speculate on who else might demand a biscuit – sorry, an economically justifiable tax incentive.

We could start with the lorry operators. They already pay lots of taxes, especially the recently increased vehicle excise duties, so it can’t be fair to ask them to pay corporation tax as well. And driving a lorry is just the same as sailing a ship, so clearly they should have a tonnage tax too.

Of course, that means all other forms of transport will shout even louder, so we’ll have to have air passenger duty (unless it’s already been invented) to charge airlines an amount per passenger, and similarly coach tax and train tax. That should help Railtrack pay its fines and still have lots of money left to do something about the inadvertent tilting of trains on the West Coast line.

Did someone say something about traffic?

Of course, we mustn’t forget electronic traffic.

A rate of 0.000001p per email should do it, and that would be a much easier way to tax e-commerce than all those dreadfully tricky questions about permanent establishments, place of supply and what to do about a server located on a satellite.

And so on, and so on. Before long, there will be special incentives for headquarter companies, royalty companies, finance companies (anything the Netherlands can do, we can do better) and eventually we can just take the Channel Islands solution and offer a flat rate of tax to companies which wish to be based here. After all, if that’s the only way we can attract business, that’s what we had better do, isn’t it?

I suppose the whole justification for this additional distortion will be that it isn’t a tax incentive, it’s just accepting a different way of taxing an activity.

The snag is, it does go against the general theme of a commitment to simpler rules and even-handedness. And isn’t there some sort of EU committee which is supposed to be looking at harmful competition?

And isn’t it chaired by Gordon’s best friend, Dawn? Oh, don’t worry, she was on holiday too in August so she won’t have noticed.

Let’s just hope she wasn’t back in time to read this, or we might have to have a rethink – such as announcing a fundamental review of the UK system, so we get coherent change and not just quick solutions to things in isolation.

Now that really would be worthy of a press release.

– Heather Self is the Chairman of the Chatered Institute of Taxation’s Technical Committee and a partner with Ernst & Young.

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