20 December 2012 | Uncategorized
The Scottish Government have published a consultation on how they will establish a Scottish Revenue, and the remit of any such body.
The consultation document focusses primarily on the replacement for Stamp Duty (“Land and Buildings Transaction Tax”) and Landfill Tax, both of which will become responsibilities of the Scottish Government in 2015.
The consultation seeks a distinctively Scottish solution to the various questions raised, but given that it is entirely constructed around the existing UK legislation, this approach seeks only to identify problems with the existing structures and mechanisms, rather than finding a really new solution.
This may, of course, be largely down to the fact that reinventing the wheel is very expensive, and that when most of the reinvention has already taken place over the past decades and centuries, there is little left to reinvent.
Conspicuous by its absence is any discussion over fundamental principles: as these decisions have already been taken, or at least have been laid out by the Government as to how they expect the policies will be implemented.
For instance, LBTT will have a sliding scale based upon a basic exemption of £180,000 – compared to £125,000 presently – and a break-even point of about £300,000; meaning that houses costing more than that will pay higher taxes than at present.
Much of the consultation is – in the view of this writer – vacuous and aimless, and whilst reference is made to the tax systems in Ireland and New Zealand, the context is entirely missing and feels like the cherry-picking of various favourable aspects of tax policy.
The consultation purports to be an attempt to find a Scottish best practice, but it reads more as an incomplete list of some current practices that the authors think could be possibly improved in some manner. Some may consider that a “Scottish solution” is actually a xenophobic knee-jerk, rather than the constructive ground-up rebuild that it could and should be.
It is a missed opportunity, largely as a result of compressed deadlines. Many self-inflicted by the Scottish Government.
However, there are a few points where very serious consideration needs to be given, and where input by the professional bodies as consultees will be vital.
For instance, at Taxpayer Obligations 3.7(c) the proposed act obligates the taxpayer to settle the tax assessed before an appeal is heard. Whilst this may very well be the norm in Rating Appeals, it is a serious change in the system if this is to be used as the model for a Scottish TMA and for other taxes in future years.
This pay-then-appeal system already exists in Scandinavia, which can result in perverse outcomes. We have been involved in Norwegian tax appeals where additional payroll costs have been assessed, but no relief would be given against Corporation Tax for the increased costs assessed until the taxpayer paid the initial assessment; and only then with a six month delay. The result could have been insolvency for the company, followed by a tax refund which would have, er, avoided the insolvency.
If these provisions form the basis for a Scottish TMA for all taxes, then this will be a major disincentive for companies to operate in Scotland, and this is surely not what was intended. However, bitter experience is that unless the restrictions on the legislation are clear from the outset, then the possibility of revoking powers become infinately less likely.
I’ll be making my representations to the questions posed through professional channels and would encourage the widest possible response.
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