Brexit & EconomyPoliticsBuilding a tax framework on sand

Building a tax framework on sand

What will the government's tax framework for business achieve? That depends on the circumstances...

Oddly, the words that stand out in the government’s tax framework for
business released this week are “depending on the circumstances”. Even as you
read through the principles intended by government to guide the formation of tax
legislation, those words are the ones that linger in the mind and overshadow any
other thoughts about what this framework might achieve.

Six principles are laid out in all, along with a statement about the tax
policy making process. It is brief and to the point. The principles say, in
essence, that the tax system should be competitive, that businesses should only
pay their fair share, that the government should avoid complexity and
unnecessary changes to legislation. Lastly, the government says it will maintain
its commitment to lowering compliance costs.

In terms of process the government said it would consult “ahead of changes”
and allow sufficient time for comment. These are all fine principles, as many
commentators remarked. But it could also not have gone unnoticed that these are
all principles already threatened by the past behaviour of government.

One of the biggest debates in UK tax is whether the system’s increasing
complexity, HMRC’s increasing aggression and the prevailing uncertainty around
many tax issues is actually undoing what competitiveness the UK has as a place
to do business.

There are notable examples that support this view. The handling of transfer
pricing, the dithering over the foreign profits regime, the introduction of the
50% tax band, the treatment of non-domiciles, the increase in employer’s
national insurance contributions, the impending increase in the small business
tax rate and the growing mountain of
tax legislation. All of these issues have created enormous disenchantment, not
only with the system, but with the way it is being managed.

This provokes the following observations: the principles are all common
sense, therefore they should have been in action already. Experience tells us
they haven’t. So what hope do we have of government standing by these ideas in
the future, especially when it includes a phrase like “depending on
circumstances” when talking about their application?

That’s a tough one. In its remarks on process, the government says that
proposed changes will be assessed against the principles. And well they might
be.

But there’s a world of difference between an assessment and acting on the
results of the assessment. The government makes no commitment on that front and
perhaps presents us with the weakness that means this framework could have been
built on sand.

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