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Indirect tax levies rise 49% over ten years

THE GOVERNMENT’S use of indirect taxation has increased 49% since 2004 as it shifts its tax base away from direct sources, according to tax and accounting information group Bloomsbury Professional.

By way of comparison, the amount of tax collected through direct levies grew by 38% in that same time, the consultancy found.

The amount of indirect taxes collected by HM Revenue & Customs has grown from £93bn in 2003/04 to £138bn last year while HMRC’s receipts from direct taxes have risen at a slower pace, from £255bn to £352bn.

The total amount of tax raised by HMRC has increased by 43% over the last ten years, from £344bn to £490bn.

Indirect taxes are levied by raising the price of goods so tax is included in the price charged to the consumer. Indirect taxes include VAT and insurance premium tax as well as duties on customs, alcohol and tobacco.

Advisers beleive indirect taxes have less of a negative impact on the incentive to create wealth than direct taxes such as income tax or inheritance tax.

Indirect taxes also have the advantage of being cheaper to collect, Bloomsbury claimed. That advantage is somewhat offset by the complexity in administering them, meaning that the growing reliance on revenue from indirect taxation may create greater opportunity for tax evasion.

Bloomsbury Professional managing director Martin Casimir said: “Taxpayers are paying more tax than ever but over the last ten years there has been an increased emphasis on those taxes that are less noticeable to the general public. The shift to indirect taxes is partly because they are seen as less likely to disincentivise wealth creation.”

“There’s been a huge shift to taxes based on consumption and purchases and away from headline-making direct taxes. For example, tax taken through PAYE is clearly signposted on every taxpayer’s paycheck, so politicians have been slowly shifting the tax burden to more stealthy indirect taxes like VAT and duty on alcohol. An increased tax burden on VAT has had a dramatic impact on the cost of living as many everyday items have gone up in price due to the VAT increases.”

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