By Daniel Hunter
The Government should avoid making further major changes to the tax system, the CBI warns today (Thursday) in a new review of the tax landscape. Instead it should allow recent positive reforms on the headline corporation tax rate, the taxation of foreign profits and the introduction of the Patent Box to take effect.
Alongside fostering a culture of certainty and stability, the CBI is calling for the Government to make several small targeted improvements to the tax system. They include introducing capital allowance for infrastructure investment, capping business rates at 2% at the very least, until full reform is possible, and reducing employers’ National Insurance Contributions to boost jobs.
The CBI report, Tax in a global economy: the way forward, also calls for the Government to spell out its principles for reforming international business tax rules. It makes clear that any changes must be coordinated with other countries and applied consistently, with the core objective of maintaining or improving UK tax competitiveness.
“The Government has taken action to make the UK’s tax regime more competitive and now needs to let the changes bed down and take effect. Constant chopping and changing of the rules risks scaring off business investors," Katja Hall, CBI Chief Policy Director, said.
“But the Government could make targeted changes to improve competiveness - a new capital allowance to boost infrastructure spending, a cap on business rates to support the high street and reduced employers’ National Insurance to encourage jobs.
“Some international tax rules also need updating to reflect today’s changing global business environment. But as the UK seeks to shape this agenda it must not crush recent competitive gains. We must coordinate reforms with other countries so UK firms are not disadvantaged.”
The CBI is calling for:
An international tax roadmap
Principles
• Need for common coordinated and consistently applied international tax rules
• UK tax competitiveness should be a core objective when shaping international tax rules
• Any changes to long established principles must bring real benefits and be delivered through revising existing practices and not by introducing radical solutions
• UK international tax policies must be forward-looking
Process
• Any changes in international tax rules must be based on international coordination
• Sufficient time should be allowed for consultation
• More international tax specialist should be recruited in HMRC and HM Treasury
• As a starting point, an international agreement on a few key international tax components should be achieved
• Dispute resolution must be coordinated internationally
• Support for capacity building for developing countries’ tax authorities should be expanded
Address international tax issues
• International tax principles around profit allocation should be reviewed
• Transfer pricing rules should be reviewed but not changed fundamentally
• International withholding tax regime should be reviewed
• The UK government should be involved in further development of core EU tax policies
• EU should be cautious when using enhanced cooperation on tax issues
• EU State Aid rules should be reviewed
Focus on domestic tax stability — policies
• Provide time for changes introduced by the UK Government’s Corporate Tax Roadmap to take effect
• Reassurance that the deduction of interest will be retained where it is a genuine business expense
• A unilateral approach to tax transparency must be resisted
Process
• Tax policy making must be transparent and predictable
• Consultation process should be improved
• More effective interaction between tax policy makers
• Strengthen the independent review of tax law
• Improve economic analysis capacity and capabilities of HM Treasury and HMRC
Remove distortions and provide stimulus for business investment
• Level the playing field for expenditure on infrastructure and other capital assets
• Limit increases in business rates
• Reduce burden of employer NICs
• Enable small and medium sized businesses to flourish alongside large businesses by simplification.
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