Fiscal drag compromises tax system's credibility
Government failing to raise tax exemptions and thresholds in line with inflation, warns Baker Tilly
Baker Tilly has
warned that fiscal drag, the process by which governments do not increase tax
exemptions and thresholds in line with inflation, is undermining the credibility
of the tax system.
In a survey the firm found that 53% of accountants and 67% of legal
professionals believed that
drag had almost completely eroded the £8,500 employee benefit
threshold. The threshold was introduced to tax benefits enjoyed by directors and
higher paid employers. Now it catches most employees in the UK.
George Bull, Baker Tilly’s head of tax, said that taxes
such as IHT have become incredibly unpopular due to fiscal drag.
‘It [fiscal drag] undermines the original intention of a tax, and serves to
make the entire tax system more complicated,’ Bull said.