Lord Lawson has suggested that the UK should replace corporation tax with a sales tax. I am not surprised. Nothing would suit the wealthiest in the UK better than that. Because, however, such comments will undoubtedly attract attention and because I have been called to give evidence before the Treasury Select Committee, who are having a hearing on the future of corporation tax on Tuesday morning, let me explain some of the issues involved.
First, let me be clear that corporation tax is charged on profits. I am well aware that there are those get this wrong. And there are also those who like to say that the charge is passed on to the customers or the employees of companies. I think the evidence for that is remarkably weak: if the tax charge could be got rid of so easily then I have no doubt at all that much less effort would be put into avoiding it. In that case whilst I do not deny that the incidence of taxes is not always obvious I think it safe to say that the behavioural responses of companies, their directors and shareholders suggests that they all think that this is a tax that falls primarily on the owners of the capital in the company precisely because that is true.
This is important. If the supposed call to reform corporation tax is actually about changing the people who pay that tax, which would then be charged on a totally different basis, then the likes of Lord Lawson are not actually calling for the reform of corporation tax at all. They are instead calling for its total abolition and replacement not by a new tax on the owners on capital (who are by and large the wealthiest in society) but by a new tax on everyone in society, the biggest proportionate burden of which is almost inevitably going to fall on those with lowest incomes. Despite all that follows this is my most important observation of all. It should never be forgotten.
That being the case, let me also be clear about some of the issues that a new sales tax, if we were to have one, might give rise to. First there is the question of what a sale is. This is a bigger issue than you might think. Currently corporation tax applies to most of the income of companies whether that income be from sales, interest, rents, capital gains, speculative market trading, derivatives, insurance premiums and more. By no means all of these are sales. By no means all of these are accounted for as sales. By no means all are subject to VAT. Many would not appear in the turnover figure of a set of accounts. Those that do not are almost invariably the returns to capital that the City would no doubt be delighted to see excluded from any replacement for corporation tax, or are rents. So there is a straightforward question to ask, which is whether or not we are willing to see these sources of corporate income fall out of tax? If we are, why? If not, if we have a sales based tax how are they to be taxed?
Second there is the small issue of whether, to beat international tax avoidance we are going to be willing to have a tax system that is different from that in the rest of the world. The opportunities for tax arbitrage, and so avoidance, that this would give rise to are enormous, whilst we would be totally outside the protection provided by the international tax treaty system. Is that something that we really want?
Third there is the question of losses and the small matter that this gives rise to of capacity to pay a tax charged on turnover and not income. Corporation tax deals with this by simply not making a charge to tax when there is a loss. This is important: after all, anyone can sell £10 notes for £9.75, make a massive turnover in a short period of time and a fair sized loss and have no capacity at all to pay tax. Does that mean that a sales tax should be applied nonetheless? And what about the situations where a loss arises because of unforeseen circumstance (and many losses come into that category, unlike the one noted, which was akin to the Northern Rock business model). Would having to pay tax in that case still be considered fair and equitable? I doubt it.
Next there is the question of what rate to apply. In 2015/16 it is expected that VAT will raise about £133 billion and corporation tax £42 billion. VAT is, of course, already a form of sales tax, although a special one (see notes below). The VAT bill represents 7.8% (or thereabouts) of GDP. It should be more but this tax is normally subject to an evasion rate of around 10% (a point to note for those who propose a sales tax to beat corporation tax abuse: according to HMRC VAT is the most evaded tax, which hardly makes it a great basis for replacing corporation tax). It is not 17.5%, of course, because approximately half of all UK economic activity is not subject to VAT for various reasons. This also implies though why a change to VAT could not replace corporation tax. First that half of activity that is not subject to VAT (much of which has already been noted and relates to returns to capital) would fall out of the charge but also rates on remaining activities the VAT rate would need to rise to the high end of EU allowed rates in most cases. This would be deeply inflationary: many rates would increase by more than 5%. Those suggesting such a tax need to say how that, and its consequences, could be managed within our economy.
This then brings us to the distributional impact. There are numerous of these. The first is already noted: any passing on of a sales tax in prices - and it would be impossible to prevent it happening - would result in significant price inflation without any prospect of compensating wage changes for most (pensioners would be an exception, which would then create its own stresses within the composition of total benefits spending). The result would be a significant increase in poverty whilst those who were the owners of capital would see a reduction in their overall tax liabilities and an apparent increase in their spending capacity and wealth as after tax earnings of companies jumped giving a significant boost to the stock market to the benefit of the relatively small part of society that benefits as a result of such changes. Such a tax change would, then, be deeply regressive.
There would be other potential distributional impacts as well, depending upon tax design. Clearly if only charged on sales as defined for VAT the financial services sector would benefit, enormously, at cost to the rest of the economy. That is exactly the opposite direction of travel from that anyone seems to want right now, and for good reason.
Then there is the impact on small business. If this tax was charged not as VAT (where a VAT registered trader can reclaim the VAT charged to them by other VAT registered traders in most cases, meaning that the VAT charge ends up, by and large, on the end consumer) but was instead charged as a sales tax - where the tax levied was not recoverable by the next person in the supply chain - then long supply chains would be penalised by cumulative tax charges. This may have real consequences. As example, a supermarket may be able to buy product straight from a manufacturer: supply chains are short in their case. That is not true of the small retailer, many of whom will buy through a wholesale chain adding one or more steps into the supply chain that will mean that they will carry a higher base cost if a genuine sales tax was charged than would be the case with a VAT style tax. A proper sales tax would then appear to discriminate against the conventional small business.
But that would not be true in the case of some small businesses. Consider the case of the very large number of small companies that are, in effect, one person only labour supply organisations that charge customers for the supply of their owner / directors services, pay that same person a modest salary to get a national insurance credit, pay dividends out of the remaining profit on which they should also pay corporation tax and then use that corporation tax paid as an effective credit against their income tax bill. The aim of many such companies is, of course, to avoid national insurance at present. But now consider what would happen with a sales tax. A tax rate of maybe 5% or 6% would be applied to sales (if pro rate to VAT, although it could be lower in the case of a genuine sales tax and still recover £42 billion) and now the owner / director pays almost no tax in the company, at all because there is no corporation tax. You can imagine the incentive to incorporate would increase enormously.
Now, of course I can anticipate the obvious response, which is that tax rates on dividends would have to be charged in full through tax returns in that case given that there would be no tax credit attached to them anymore. It is the obvious reaction, but there are very real difficulties attached to that. First, let's be blunt: evidence I have documented suggests that there may be hundreds of thousands of small companies already trading and not declaring any of their tax liabilities. Any incentive to increase the risk of that is an obvious mistake: tax evasion in this area already imposes a far bigger cost on the UK Exchequer than does offshore tax abuse by large companies. I would urge people to keep all issues in proportion. Second, the compliance cost of having dividends untaxed at source is very high: the number of additional tax returns required even given the (absurd, forthcoming) exemption from tax on the first £1,000 of savings income would be enormous. Is that the direction of travel we want to go in? Then there is the risk of significant increases in tax bad debt when more people might owe by assessment, let alone straightforward increases in evasion as sums are omitted from returns.
And this is all before we consider another distributional impact. Some people simply do not need to live on their incomes. They have enough in capital to defer ever paying themselves from the companies they own: if corporation tax is abolished they will be given even greater opportunity than now to accumulate their income in a low or no tax environment, exacerbating the already distinct wealth divides in society.
So, at that point the obvious thing to do is say that corporation tax should be abandoned on small companies and all should be charged to tax as if the profit they earned belonged to their shareholders and that those shareholders must pay whether or not they actually get the income or not. But what if, as is entirely possible, a minority shareholder in such a company did not receive the income but was asked to pay the tax? How is that fair? And what too if the ownership of the company was registered as on offshore company that did not pay tax, to add another complication into the chain (I assure you it would be so obvious a ruse it would happen)? What then? The only obvious answer would be to get the company to make a full tax payment on behalf of the members on account of their liability which they could use as credit against their tax bill. To prevent higher rates of tax being lost this might need to be at above 20%.
That suggestion would definitely work but it is important to note then that such a system is, of course, in effect what a proper imputation system of corporation tax (where the corporation tax paid is imputed to be an income tax payment in the hands of the taxpayer) does: we are back to where we started. As a matter of fact then we cannot abolish corporation tax for companies then if we are to have anything like tax justice in the smaller, privately owned business sector.
But does that mean we should only let larger companies off this tax bill? Wouldn't that just mean that big business would be rewarded for its abuse by a sales tax it could always pass on to customers and a massive competitive advantage over smaller business as a result of introducing a sales tax that could never be made available to small business because of the chaos that would result? Surely no one would want that, would they? Unless they stood to gain massively as a result, of course.
To summarise, sales taxes as substitutes for corporation taxes are a non-starter because they would create massive complications in the tax system, would shift the burden of tax onto the lowest paid and small business, would increase income and wealth inequality and would give big business a real boost in their competitive advantage as a result of that tax boost. I can see every reason why Lord Lawson might be keen on a sales tax as a result. I can see every reason why a lot of lobbying will be thrown in the direction of such a tax now. And I can see every reason why we must work very hard indeed to resist it because this will deliver injustice of extraordinary proportions.
The answer is we need to make corporation tax work on larger companies. That is not hard.
We need to move towards unitary taxation.
We need full country-by-country reporting on public record to embarrass them into paying.
We need to give HMRC the resources to chase these companies.
We need a Board of HMRC with the courage to take on big business tax abuse.
And we need to have politicians with the political will to tackle this issue with courage and insight.
We could have those things.
What we will never need is a sales tax to replace corporation tax.
Please beware of false promises and those who bear them.
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Richard your argument is basically flawed – I will address it in full in the morning!
Respectfully Peter, you can say what you like
There is no valid counter argument that you can present
Which is why no one has tried to tax capital by charging sales
You will be wasting your time
Abolishing corporation tax means (looking from the other end of the telescope) that profits are never taxed.
As profit is the raison d’être of commerce, to completely exclude it from tax and whilst taxing other unrelated things seems at the very least perverse and at worst plain stupid.
Might just as well say that we’ll resurrect the window tax – everyone has them, they’re fixed to one place and they’re easily countable. So what if their relation to profits is tenuous? (tho’ I suspect Google doesn’t have many of them in Bermuda).
We need to move towards unitary taxation.
We need full country-by-country reporting on public record to embarrass them into paying.
We need to give HMRC the resources to chase these companies.
We need a Board of HMRC with the courage to take on big business tax abuse.
Never going to happen!
I mean…look at who is proposing losing corporation tax…this is the guy under whose stewardship deregulation of the financial “system” took place…..he even admitted that it, basically, was one of the causes of the 2007/8/9 crash…..a good case could be made that he is “fronting” for the financial system; again.
So if “we” lose corporation tax, everyone else would have to do the same, or stand to lose everything.
“Oh well guys, looks like the little people have rumbled TTIP. Since it will take us time to regulate the internet, we will have to think of another way to get loads of money and pay no tax. Get Lawson on the phone, he did well last time”
I can see that inflation is going to rise very fast under the “don’t-tax-the-rich-corporations-tax-the-poor” regime (another Lawson victory last time). Consumption is going to drop quite a bit as well (it would have helped the balance of payments, except we don’t make “things” anymore.
Probably it will also lead to a rapid exit from the EU…..probably not voluntarily (mixed emotions on that)
I doubt he would have recommended it unless it was already “in the machine”.
I live in hope
Andrew Marr seems to be giving a platform to the Lawson view. Today we had the nervous man from google going through the usual excuses, with only moderate challenge from Marr. Then we had the Brexit campaigner also saying the corporation tax needs reform. Finally Mr. Javid claiming that the UK is leading the way on fighting tax abuse (!) . He also repeated the old argument, without challenge from Andrew Marr, that goggle pay National insurance and VAT. They pay employers’ NI, but employees pay NI and customers pay the VAT.
Your work and that of others is so valuable in arguing for fairness for the mass of the people. How can we get well informed objections to these views an equal hearing? It seems to be that vested interests will try to dominate the debate.
I will try at the Treasury Select Committee on Tuesday
But there is an issue when many in the Opposition do not know how to make the case
Do you know yet who Google will be sending to represent them at the Treasury Committee? Surely they cannot be allowed yet again to put forward PR and marketing/commercial numpties who clearly don’t know what they are talking about with regards to tax and finance.
Where is their CFO and CEO when it comes to these discussions? Hiding in the shadows because they don’t want to have to tell the truth!
Google are going to the PAC
This is the Treasury Committee
As far as I know Google are not going
John Cullinane (ex Deloitte) from the CIOT and John Whiting (ex PWC) from the Office for Tax Simplification are
Good luck at the Select Committee Richard.
I hope that the public disquiet over the Google settlement means they are more open than usual to your suggestions!!
Let’s see!
It still amazes me that someone as bonkers as Lawson was Chancellor of the Exchequer.
An interesting question is if CT is abolished, whether the compliance cost of taxing more dividend income is greater or less than the current compliance cost of applying CT.
There are enough countries with no CT that there should be evidence.
Enough countries with no CT?
You mean parasitical places like Cayman?
According to The Motley Fool there are nine locations around the world which do not levy Corporation tax:
Bahamas
Bahrain
Bermuda
Bonaire, Saint Eustatius and Saba
Cayman Islands
Guernsey
Isle of Man
Jersey
Vanuatu
However, according to http://www.taxfoundation.org the following states in the US have no state corporate income tax as of Feb 1, 2010: Nevada, Washington, Wyoming, Texas, and South Dakota.
It would most certainly be useful for those sympathetic to the argument that Corporations should not pay Corporation Tax to make up their minds on the status of Corporations. There appears to be at least a willingness to accept, if not vehemently defend, the legal fiction that treats Corporations and Public Limited Companies as legal individuals with the same rights as an individual human entity. Although as with so many aspects to do with Corporations those who argue as such want to have it both ways, emphasising the rights and discarding the responsibilities.
It often seems that the ideal of those suggesting and defending ideas like Lawson’s is that individuals should have responsibilities as well as rights but that corporations should only have rights and not be burdened with responsibilities which should be shouldered on their behalf by the rest of us.
Perhaps one day they might have the honesty and bottle to make their minds up one way or the other rather than acting as cheerleaders for differential treatment and special privileges which disadvantage and overburden the majority of us and undermines the rule of law in which a key plank is equality before the law.
I wouldn’t pick the fact that some e-cigs taste bad to a particular individual as an excuse for dodging a question on the cost of e-cigs.
There are already compliance costs to taxing dividend income and compliance costs to taxing profits. My question is in the event of CT abolition: would the additional compliance costs of taxing dividend income more be less than the current compliance cost of taxing profits.
Every country in the world has 0% CT at one time, and several still do, or have gone back to 0% CT. Evidence of the comparative costs should be available to an appropriate tax expert.
Dave has already supplied the list of those who don’t
I really do not think there is anything to add in serious debate
Bb why not just return to pre-1600 and remove all privilege and benefits of incorporation and limited liability, perhaps then we can tax business income much more easily and see who really is willing to take risks in order to earn a reward!
Because, Keith, as I said above, those who argue this line want to have it both ways – Individuals, responsibilities as well as rights; Corporations, rights with responsibilities loaded onto individuals.
It’s like watching the Stockholm syndrome on steroids.
I do not wholly agree with the thrust of the article. I do however accept that companies would relish a sales tax as Lawson describes as it would exclude numerous other profits/income. Surely the solution is to redefine income for companies and individuals. In the case of the former it should be possible to arrive at an income figure by building an algorithm that combines all sources of revenue from a company by feeding in the relevant variables (international profit margin, ROI, return to shareholders, capital gain etc.,) AND all sources of income as Richard so capably identifies. Inter-company transfer payments whether for IP, services, royalties etc could be expressly excluded as ‘evasion intangibles’. The result would show an underlying figure for total sales and profit and a tax amount calculated and paid. It is a simple exercise when compared with the several thousand pages of current tax legislation.
Sorry: I don’t buy that
That just sounds like a great opportunity for gaming
Tax has to be based in reality
This is starting to look like a real political stinky mess for the Tories – it’s clearly not what they say but what they do that matters!
http://www.theguardian.com/technology/2016/jan/30/google-tory-battle-protect-30bn-tax-haven-bermuda
A good detailed rebuttal but I’d like to raise a question that corporation tax, as a tax on profits, does not address. This is where a company backed by large quantities of venture capital can sustain losses for several years to support predatory pricing that drives competitors out of business. By the time it starts to pay any profit-based tax it has already established market dominance from which point it can exploit customers at will. Amazon is well on the way to achieving this; others like Uber are following.
Tax regimes have helped with this. For a long time Amazon avoided sales tax through exploiting rules on online trading and avoided corporation tax not just by manouvering across borders but also by deliberating keeping margins low while it built market share.
Any thoughts on this?
That is for regulation and not tax to stop
Tax cannot do everything
That is a good example of the wider issue of predatory capitalism. The so called “disruptive business models” are really just about redistributing profits from one set of capitalists to another (often but not always in another country).
It is a battle which will always be played out in capitalism, as this is after all a game of economic warfare by a breed of people who in past lives would have preferred real warfare to protect and increase their wealth.
The current form of lightly regulated, aggressive and technology driven capitalism is just a re-incarnation of the dominant economic force that has been present for many thousands of years – might is right!
This is a good article today on one effect of predatory capitalism, funded by offshore capital to disrupt existing industries and ultimately capture future revenue streams into a monopolistic/oligopolistic world where even more profits can be siphoned away from the taxmen of the world’s governments.
http://www.theguardian.com/commentisfree/2016/jan/31/cheap-cab-ride-uber-true-cost-google-wealth-taxation
That is good, I agree
It is time to no longer allow the carrying forward of losses to put against corporation tax. This is probably the single largest method by which tax dodging is enabled. It does not materially affect small companies but costs the country billions.
Sorry: that’s just wrong
First that is not the number 1 tax dodging technique and it is absurd to suggest it is. Losses can be used, but not to the degree you suggest
Second, if we wish to tax economic substance then some allowance for loss relief has to be made
I am for tax justice, not penal tax codes
I presume you mean losses created by charging interest on funding provided from a tax haven?
These [Tory] commentators are simply front running the cutting or abolition of CT saying its “not delivering” or “not fair to the hard working strivers”. The Sunday Times seems to have had the same private briefing and runs with “Zero tax bill for UK big six” showing how the big boys don’t or won’t pay. [1] What next for the ‘paying public’ NIRP? BTW I switched off Marr at 9:01am when I heard the useless lineup, and read the heavies instead.
1. http://www.thesundaytimes.co.uk/sto/news/uk_news/article1662903.ece
We really do need country-by-country reporting
Pleased to hear John Mc say exactly that on Sunday Politics today.
Good news
The current position is unfair and untenable, it is complicated and opaque, it’s very complexity and opacity means that an initiated priesthhood is able to wield enormous power outside of any democratic scrutiny. Despite this it will take decades to change unless we devise a “people’s tax” that can be broadly understood. Any change that maintains the current level of complexity will fail.
Currently the “cost” of avoidance of tax by public companies and multinationals is passed on to the ordinary taxpayer through higher taxation or increased austerity.
A sales/purchase or consideration tax would bring with it many problems but fewer than we face at the moment. It would clarify the transactional nexus so that the purchaser’s location became a key determinant.
Direct taxation is progressive if the wealthy pay the levels of tax anticipated by the legislator, otherwise it is regressive.
On Marr this morning Google was arguing that it had annual taxable profits of around £100 million in the UK. This would imply a miniscule, derisory, profit margin that would not even justify it’s capital expenditure.
We need to act quickly.
Google declare £100 million
That does not mean the figure is right, of course
That is the real problem
And their auditors go along with it because it is legally structured to make that possible
Google, for example, has 73% of its shares Held by institutional and mutual fund owners. Do you have any information as to the ultimate ownership here?
In particular, how much of Google is owned by pensioners and other small fry, including the indirect ownership via union pension funds? Why should pensioners’ dividends from Google shares be burdened with any corporate tax at all?
If the money now taken by corporate tax were allowed to flow through to shareholders would not high income shareholders pay marginal tax rates on that money higher than corporate rates and low income shareholders, particularly pensioners, get more disposable income?
Years ago I bought some Google (Alphabet Inc.) for my younger son’s education. Why do you want to reduce his education money?
There is a case for taxing dividends leaving the jurisdiction, none at all for a corporate tax.
There is no case for a tax designed to stop corporate “cash hoarding”. Corporate cash is not hoarded a la Scrooge McDuck’s coin filled swimming pool. It is invested and loaned to governments and other businesses which have more immediate needs and opportunities than the hoarder. Much of that money goes to pay workmen’s wages, for even when buying material, one is paying the wage of the one who made or mined or grew the material.
So you’d like the wealthy to free ride on the rest of us?
Is that it?
And how would you replace the £42 billion lost? Cut services for those without the means to save, I presume?
Your logic is so bizarre this is a one off appearance by you
Perhaps you should read my comment again.
If there were no corporate tax then corporate income would flow through to the wealthy via dividends and the tax the wealthy would pay on that dividend income would be more than the corporate tax on the same income.
So no, I do not wish the wealthy to have a free ride.
Likewise, those not wealthy would have more income as they would receive corporate income via dividends unburdened by corporate taxes.
So yes, I would like to see the small fry get their dividends without a stupid and onerous tax burden poorly designed to tax high income earners, which it does not do very well.
Indeed, in many cases the corporate tax is a shelter for the wealthy, who can leave income surplus to their day to day needs in their corporations. As I do. And I’m not happy about being able to do so while my son gets screwed on his education fund dividends while I own the shares of a corporation paying a 15% tax rate.
None of this difficult conceptually or for computation. Please reconsider.
I have
I am absolutely right
Including as to your motives
Just, as the Americans would say, backing up for a moment.
It seems reasonable to make the observation that Fred Z does not represent an isolated example of the thought process which has produced what has been written in the two posts/comments so far. Fred, like others, is clearly sincere in the approach and line he is taking. Which is deeply worrying on a number of levels not least of which is that this frames daily decisions made which have an impact on others beyond that of the individual in question.
There is a great deal of cognative dissonance going on. The observation, for example, has already been made about the differential stance of a certain mode of thought over rights and responsibilities between the two legal entities of person and corporation. Fred provides another cogent example here.
In the first post he underlines the argument by stating that:
“Corporate cash is not hoarded a la Scrooge McDuck’s coin filled swimming pool. It is invested and loaned to governments and other businesses which have more immediate needs and opportunities than the hoarder.”
However, in the second post, also to underline his argument, we get this:
“Indeed, in many cases the corporate tax is a shelter for the wealthy, who can leave income surplus to their day to day needs in their corporations. As I do. And I’m not happy about being able to do so while my son gets screwed on his education fund dividends while I own the shares of a corporation paying a 15% tax rate.”
This statement is saying a number of things.
– Bearing in mind the context is “the wealthy” the phrase “income surplus to their day to day needs” is an implicit recognition that no matter how much money one has one can only wear one pair of trousers at a time or sail in one yacht, live in one house etc. Beyond a given level of surplus it is just not possible to spend it all.
– More revealingly, the statement undermines the previous statement about surpluses not being hoarded.
Whilst such a contradiction would seem obvious to a blind man on a galloping horse it is not obvious that this is the case with the author of the two statements. Given the widrr impact of decisions based on such reasoning seems to go a long way to explaining why we are where we are.
Agreed
And thanks for taking the time
Dave – I’m not sure its cognitive dissonance going on here, that would imply a belief in both fairness and freedom which are of course unlikely bedfellows.
Naked self-interest is a less generous conclusion!
But of course if the world operated to the moral principle of “From each according to his ability, to each according to his needs” – life would be so much simpler for all of those who may be suffering the mental stress of having two or more contradictory financial beliefs at present!
“There is no case for a tax designed to stop corporate “cash hoarding”. Corporate cash is not hoarded a la Scrooge McDuck’s coin filled swimming pool. It is invested and loaned to governments and other businesses which have more immediate needs and opportunities than the hoarder. Much of that money goes to pay workmen’s wages, for even when buying material, one is paying the wage of the one who made or mined or grew the material.”
Yeah, right Fred.
If you hadn’t noticed the global economy is tanking. Having bailed out the finance industry taking on massive levels of public debt, Governments are having to print money to keep the Corporations in the luxury they think they are owed; no one is lending or investing; the infrastructure the majority rely on is crumbling and no longer fit for purpose; the Japanese have just set negative interest rates; the wage rates you crow about are dropping like a lead bricks as the corporations scour the planet for the cheapest rates in a race to the bottom whilst profits and productivity soar ever higher; their paid political servants pursue begger my neighbour policies to please their paymasters in the Corporate robber baron sectors; stock markets are falling as the practice of Corporations leveraging themselves to higher levels of debt as they borrow heavily to buy their own stock to artificially raise the short term value starts to fall apart and the chickens come home to roost expecting the rest of us to bail them out with even more austerity.
Of course all the money and wealth is accumulated and hoarded at the top. That is how the system is designed to behave and only the tetminally deluded economic equivilant of the flat earth society believe that trickle down has ever occurred. I’m not sure what planet you are talking about but it sure isn’t this one.
Here in Jersey we moved to 0% corporation tax and replaced it with GST (our version of VAT).It is applied to everything from doctors fees,food,newspapers,services,etc,etc.It has completely destroyed our island,there has never been so much discontent and poverty,the middle and low classes are just getting hammered while the rich (business owners) get increasingly richer.The local population certainly don’t prosper by having no corporation tax.
So please don’t sink to the bottom of the barrel like we have.
It doesn’t work.
It does work; for those that matter.
Little people don’t matter.
Bet it works for the banks and politicians?
Corporation tax is effective provided it’s administered correctly – which is where HMRC went wrong.
I don’t see how a sales tax could be collected from an offshore multinational company without a huge amount of administrative costs. Be interesting to know how Lord Lawson thinks it could work.
A unitary tax just isn’t going to happen any time soon. The US – the biggest player -is in favour of arm’s length international transfer pricing principles,and unitary tax would be counter to the principles in the ongoing BEPS negotiations.
One answer might be a progressive turnover tax, the more a company turns over the more it pays in tax. This has the benefit of reflecting the amount of business a company carries out in the UK (you could avoid the booking of sales in Ireland etc by making the tax chargeable on fees paid by UK residents). It would also benefit small companies over large, increasing the likelihood of small businesses succeeding against multinationals. Level of tax would only need to be 1% or so.
So we tax supermarkets supplying basic products very highly, increasing the cost of living
And banks, that make high profits on low sales, lowly
How does that make sense?
The level of profit is not the issue here, the aim is to derive a fair return for the country from economic activity.
Supermarkets would not be taxed very highly on basic products. Supermarkets are making substantial profits and a small turnover tax would not affect prices as competition between supermarkets is pretty strong.
Regarding the low sales/high profit of banks this modest proposal does not mean that other measures such as a Tobin tax cannot be introduced.
As with any tax different business models will be affected differently that neither invalidates nor precludes the proposal of Progressive Turn Over tax. The one thing that a company, wherever it is based and whatever its transfer pricing arrangements, cannot hide is its turnover.
I am sorry: this is just economically wrong
First, profit is necessary. I would argue that
Second, if all supermarkets faced the same charge at the same time of course they would change prices: they do with VAT
Third, a Tobin tax is not a tax on profit
And yes a company can hide its turnover: that is exactly what Google is doing, which makes your whole suggestion really rather odd
Personally I’d prefer treating corporations as completely transparent for tax purposes (like a partnership, all income has to be assigned to an individual). I am not convinced it would enable avoidance. I would also treat realized and unrealized gains the same, I think it is totally fair personally as dividends make no difference in economic terms (plus wealthy individuals with lots of unrealized gains likely have the ability to fund any such payment). At that point the main avoidance trick would be residing in a low income jurisdiction. That seems okay to me. I don’t think you should pay taxes to lend money to another country.
There would be some issue in valuing non-quoted entities, but you could use book value for those. Re-routing the income wouldn’t avoid tax, since you’d have to pay the tax anyway, since you own the off-shore vehicle which has increased in value (and you tax unrealised gains). For quoted entities you’d likely pay in excess of that since the market will likely discount additional profits. But you can just sell some of shares to fund the liability anyway. Secret ownership would be a problem, but that would be total evasion, and I doubt people would do it (or at least I don’t think more people would do it).
I think this would be fairer than unitary taxation. Ignoring intellectual property is a non-starter for me. Taxing a company for just selling in a country seems also wrong to me. I think production creates the value not the sale (obviously retailing itself is a form of production). For example I don’t see why Apple should pay taxes in the UK. They don’t build anything here, they just sell (mostly to retailer I would bet). They have a small retail business, which is basically just advertising so it will never make much money. I can see that you could reasonably think that selling creates value, but it seems impractical. I mean what about a farmer (or a miner): should he pay some tax to the place where his produce is consumed? Assuming a sale creates value seems to require it. Should oil producing countries pay some tax to the oil consumers?
Currently corporations are useful tax-deferral entities. In my world, they would lose such ability entirely. They would also basically have to pay taxes on likely future economic activity (since the market value of such corporations would likely increase a lot more than the actual profit). Rich people deciding to move away (like Mrs Green I guess) would be a problem, but I believe people should have the right to move away and take their money with them (and by taxing unrealized gains with have much lessened the issue).
The trouble us your proposal taxes people when they have no income to pay it and does not tax people when they do
Apart from that, it’s a winner, barring corporation tax which as it is now is better
I actually think you mean cash and not income. A company that pays no dividend still creates income for the owner in an economic sense. I think the cash itself is lesser consideration: you can borrow against the asset or sell a fraction of the asset.
Corporations are required to account for their profits this way, aren’t they? It’s not quite as straight-forward, as there are all kinds of exception, but a company has to pay taxes on unrealized profits (or losses). So it’s not like it’s a novel concept. I grant you unrealized losses are more common (as on average they can get away with undervaluing their assets most of the time), but the philosophy is fairly clear I think. Why should people (especially high worth people) get away with a simplified regime? Most people wouldn’t get affected by this changes anyway.
I also think it would have other advantages: relatively high corporations taxes are unfair to small investors, who might have lower marginal tax rates than corporation tax (not so important with low corporations taxes, but still a consideration I think). US corporation tax is 35%, that’s surely too high for small savers (even if in practice nobody pays it, it’s still wrong I think).
It would also reduce all the issues with taxes on intellectual property. Especially for quoted/traded companies, the value of the intellectual property would be taxed immediately as soon as the market starts valuing it. You wouldn’t need to wait for the royalties to be paid over the years. This is much fairer I think: you created the value when you create the intellectual property. There is no reason to wait before collecting the government share of your production. If the market is wrong, you get to offset future taxes with your losses.
I think this would tax start-up much more fairly I think. How is it fair that someone building a billion dollars company pays basically no taxes on it for years and years. In the US, you could basically given it to your children and pretty much never pay taxes on it (due to the step-up rule). It’s a bit better here, but still to easy to avoid: just give it to your children early enough and you are okay. Corporation tax solves part of the problem, but way too slowly. It probably takes 40 years for the government to get its fair share even in the best case scenario. How is that fair compared to other people?
By and large companies do not pay tax on unrealised gains or losses (some, I accept do happen under IFRS, but not that many). The principle of tax has always been to tax realised sums: tax should not force people into impecunity or bankruptcy. I am not interested in creating tax injustice