Rethink of business taxes urged

A think tank has argued that business tax in the UK should be ‘rebalanced’ to ensure that the most profitable businesses pay the most corporation tax and that a new tax should be brought in to eradicate tax avoidance.

The Progressive Policy Think Tank (IPPR) claims that the UK has created “one of the most regressive systems of corporate taxation in the developed world” over the past 10 years.

It cites the fact that the rate of corporation tax has been cut from 30 per cent in 2006 to just 19 per cent today and that there will be a further cut to 17 per cent within this Parliament. As it points out, the tax is just over 30 per cent in Germany and 33 per cent in France and even in the US, the rate is higher than in the UK.

According to the think tank, this means that the burden of taxation has shifted so that more tax is now paid by firms which employ a lot of people but are not so profitable, and less by those that are highly profitable but which do not employ many workers.

Therefore, the IPPR argues that there should be an increase in corporation tax from 19 per cent to 24 per cent. The revenues from this should be used to cut employers’ national insurance contributions by two per cent from 13.8 per cent to 11.8 per cent. This would shift the burden of taxation from workers onto shareholders and could therefore lead to an increase in wages, boosting the economy more broadly.

Secondly, it would introduce a new tax designed to prevent multinational tax avoidance. It calls this the ‘Alternative Minimum Corporation Tax’, which would link a business’s tax liability to its sales or turnover in the UK, ensuring that firms cannot avoid taxes by shifting their profits to low-tax jurisdictions.

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