Ahead of the general election, the Institute of Directors will release a series of policy papers focusing on taxation, Europe and trade, infrastructure, financial services and corporate governance. The IoD’s Head of Taxation, Stephen Herring, begins with GE2015: IoD Priorities for Tax Reforms.
Taxes which collect below £5billion per annum should be challenged annually, with a view to their repeal or merger with other taxes, according to the Institute of Directors. Such taxes include stamp duty on shares (raising £3billion), air passenger duty (£3billion), capital gains tax (£5billion) and inheritance tax (£5billion). Taxes which collect more than £5billion should be subject to wide-ranging simplification and tax rate reductions.
The IoD argues that if taxes become an inhibitor to growth, public services and investment will suffer in the long term and this will be to the detriment of the entire economy. Radical tax reforms should be preferred to piecemeal, overly-complex revisions to what Herring calls “the already monstrous tax code”.
“Simplification should be the watchword”, Herring maintains, but it won’t be achieved “by thinking up ever more complex exemptions, rules, distinctions and definitions”.
Launching the paper, IoD Priorities for Tax Reform, Herring said:
“The basic principles here are that taxes should be focused purely upon the fiscal revenues collected and their wider economic impact. They should not be confiscatory, punishing or unduly complex.
“We continue to support the priority given to reducing the UK’s annual fiscal deficit and recognise that this is no easy task. We also support reforms that have improved the UK’s competitive ranking as a business friendly country. However, we have been disappointed with the pace of tax reform under the Coalition, and a more radical agenda for tax reforms is now needed.
“Proposals for any new taxes ought to be properly challenged with regard to their efficiency, their collection costs and the possibility of undesirable and unforeseen consequences. Two worrying examples of where these concerns have not been thought through include the Coalition’s proposed Diverted Profits Tax and the Opposition’s proposal for a Mansion Tax.”
Other policies put forward in Herring’s paper include:
- Triple-locking tax thresholds so that thresholds for tax bands increase each year by the highest of consumer price inflation, earnings growth or 2.5% per annum.
- Abolishing the fiscally inefficient 45% additional rate of income tax.
- Consulting on merging capital gains tax and inheritance tax, so that capital is only taxed once and at a rate sufficiently low to obviate the need for more complex reliefs.
- Allowing trading companies to opt out of corporation tax by electing for s “tax transparent” treatment on a similar basis to the successful “S-Corporation” regime in the United States of America.
- Focussing business tax cuts on middleweight entrepreneurial businesses, which have benefited much less than multinational companies and microbusinesses from Coalition tax reforms.
Stephen Herring concludes:
“We consider that the measures proposed in our Priorities for Tax Reforms paper will accelerate the progress of the UK’s tax system towards simplicity, incentivisation and enhancing the attractiveness of the UK for both entrepreneurs and foreign direct investment.“
Download the full report here.