Glad to see ICAS contributing to the fiscal powers debate. This follows on from PWC last week.
I have not yet had a chance to read what they have said in any great detail but have outlined some general thoughts below.
1. How can the power to vary a rate of tax be looked at in isolation?
The comments by ICAS concern devolving the right to vary the rate of corporation tax to the Scottish Parliament. The background to this is that the Northern Ireland Assembly is likely to be given the right to vary the rate at which corporation tax is charged on companies located in the Province.
What is the point of just devolving the right to vary the rate or rates at which corporation tax is charged without devolving underlying or connection legislation? What about the rest of the corporation tax legislation? What about company legislation? The tax rate is only one issue for companies. What about tax reliefs? What about company administration? If this is a serious debate about giving the Scottish Parliament increased fiscal levers why are these points not being discussed?
Secondly. If we are serious in the need for increasing the number of economic levers the Scottish Parliament has at its proposal what about stamp duty and stamp duty reserve tax? Taxes do not apply in isolation. It is rare to only have to consider one tax when advising a business. As these taxes are being charged on share dealings these should be looked at along with corporation tax.
Also business does not just consider the headline rate of tax when deciding where to locate. Many others factors are looked at and not just tax.
My second point about “connected taxes” applies equally to property matters. In that case stamp duty land tax and capital gains tax.
Also I still find it odd that we are discussing income tax in the context of the Scotland Bill and corporation tax due to what is happening in Northern Ireland. A more sensible approach would have been to look at areas already devolved to the Scottish Parliament and match up the taxes that apply to these powers. For example. Inheritance tax as succession law is already devolved. Or the environmental taxes as the environment is a devolved responsibility. Tobacco and alcohol duties as health is devolved or the various car taxes as transport is devolved. That would give the Scottish Parliament a series number of economic levers and also the chance to learn what to do with them.
2. Institutions. Scotland is soon to have its own tax system. That is true even under the Scotland Bill proposals. The Scottish Parliament although not having control over a complete range of taxes will have control over a number of taxes and have some form of borrowing powers. The Scottish Government’s Finance Department needs to become an Exchequer, i.e. a body that deals with matters presently the preserve HMRC and HM Treasury. Why is this issue not being debated?
Again on institutions. Scotland is a relatively small country. Much smaller than the rest of the UK. Do we need our own separate HMRC and HM Treasury? Why not combine them? In simple terms HMRC is simply there to administer and collect our taxes. Does Scotland need its own Companies House, Registers of Scotland or Stamp Office? Of course not. One tax, law and registration body could deal with these and many other functions. Again why is this issue not being debated?
3. I was intrigued by the following comment by Elspeth Orcharton, assistant director of tax at ICAS: “Devolving tax powers is contrary to the goal of simplifying tax legislation and stability at a UK level, and you could question whether such a move would make the UK as a whole less competitive on the international stage.”
That sounds as if the starting point for ICAS is what is good for the UK not Scotland. Also is ICAS saying that no powers should be devolved ever? I suspect not.
Devolving taxes may actually simplify the present system. For example when SDLT is devolved there will be no need for the present guidance and forms to explain the differences in Scotland and England due to our different systems of property law. Also whenever I have discussed the devolving of SDLT one issue has almost certainly been raised. How can we simplify it.
The last point of the above comment is also also telling. I, for example, look at this issue from the viewpoint of how can I make Scotland more competitive. I suspect that many views on devolving fiscal powers may be decided simply by where that person’s starting point is: Edinburgh, Cardiff or Belfast or London.
I am also not sure what is meant “stability”. I suspect it may be a reference to tax competition. If it is then that horse has left the stable. Once taxes are devolved tax competition will soon become the norm. I for one do not see that as a bad thing.
The term ” tax simplification” in a UK context does also make me smile. Why is devolving taxes contrary to the principle of tax simplification? If we in Scotland do not think we can improve on what we have presently then what is the point in having this debate.
What people forget is that the UK does not have a unitary legal system. Although the tax system applies English law there is on occasion conflict with connected legislation. For example the introduction of SDLT in Scotland is generally regarded as being a shambles. HMRC did not take into account Scottish property law. The conflict there was tax law based on English legal principles and Scottish property law.
Anyway, just a few thoughts on a quiet Sunday afternoon.
More on this from the Scotsman can be found here.
