Perils of tax merger

Tax experts have warned that a merger between the Inland Revenue and Customs & Excise, which MPs called for last week, could dramatically increase the Revenue’s powers of investigation.

The MPs’ recommendation, published in a Treasury committee report, is the most significant sign yet of parliamentary support for a tax authority shake-up.

Supporters of a unified tax authority claim it will reduce bureaucracy and create a single point of contact for taxpayers, in line with most other European tax regimes.

The report calls for the government to launch a feasibility study into how the two departments should be merged.

Although it did not give a deadline for a merger, the committee suggested that 2004 could provide an ideal starting date, as it will mark the end of long-term Revenue partnerships with outsourcers such as EDS and Andersen Consulting.

Francesca Lagerberg, of the English ICA’s tax faculty, said there was wide-ranging support for a merger. But she warned the Revenue could use the merger to draw on Customs’ wide-ranging powers of criminal investigation.

‘I think people will be worried about the Revenue using this as a way of broadening its powers to investigate tax affairs,’ she said.

One senior Big Five tax investigation expert said a future merger between the Revenue and Customs was inevitable but warned the government would struggle to reconcile the sharply diverging powers of the two bodies.

‘There are differences in culture and power,’ he said. ‘Customs has a far greater right of entry and access to material than the Revenue.’

John Whiting, tax partner at PricewaterhouseCoopers, said the government could compromise by creating a general tax authority but leave a second department to police imports and combat drug smuggling.