PracticePeople In PracticeA lesson in how not to tax.

A lesson in how not to tax.

In many ways I like tax. I like the decent public services and stable government for which taxes are a necessity.

(And don’t bother to write to me about public services and government unless you have lived for an extended period of time in a third world country).

But there are three very big things wrong with the way we do tax:

1) there is too much of it

2) it is collected very inefficiently

3) the whole system is opaque.

Forgetting savings and investment and the balance of payments, the tax take roughly equals government expenditure. This is around half the gross national product.

Any company with head office costs at 50% of turnover would be pilloried.

So we need inroads into expenditure. In part this questions what we spend it on – for example, a proper system of workfare where you are not unemployed but are required to train and qualify for a proper job.

In part it is to do with simple efficiency – I wouldn’t mind betting that an army of process re-engineering consultants, while costing tens of millions of pounds, could reduce overall spend by hundreds of millions and improve the level of service.

As to inefficiency, let’s scrap a few taxes. No, bugger that, let’s scrap most taxes. If necessary, increase the rates on other taxes. Why not aim to have only one tax (income tax) so that citizens would be only too well aware of government spending as a proportion of gross national product.

Adding any new tax automatically adds all the cost of its collection for zero marginal benefit since tax is only a transfer payment anyway.

Here’s some fun – if you could add only three other taxes to the base of income tax what would they be? Inheritance tax? VAT? Capital gains tax? Dog licences?

And it is all so complex. Cutting out taxes would help but even then there are some really manic twists and turns. Why do we have exempt status for VAT, why not just zero rate? Is corporation tax now unenforceable since it has just turned into a game of who’s willing to pay?

Why not simply make corporation tax 30% of audited profits according to UK GAAP rules?

There is a bit opportunity for the UK economy here. I wil happily chair a committee to look into tax simplification. But the problem might just be politicians.

Low tax rates on a broad taxable base might be a more electable proposition than high rates on a simple, transparent and narrow base. So don’t hold your breath waiting for my appointment.

– Neil Chisman is a member of the Financial Reporting Council and a former finance director of Stakis and Thorn. Why not simply make corporation tax 30% of audited profits according to UK GAAP rules? There is a big opportunity for the UK economy here. I will happily chair a committee to look into tax simplification. But the problem might just be politicians. Low tax rates on a broad taxable base might be a more electable proposition than high rates on a simple, transparent and narrow base. So don’t hold your breath waiting for my appointment. ?:

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