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The UK’s authorities have an ‘obsession’ with tax avoidance that is unbalancing the tax system and will result in the stagnation of the country’s economy, according to a leading City law firm.
In a submission to the Office of Tax Simplification, Berwin Leighton Paisner (BLP) said the body’s review of more than 1,000 tax reliefs should be ‘the means to achieving a more competitive tax system’.
Simplicity for its own sake will be counterproductive if is at the expense of reliefs that can encourage investment and growth when instigated correctly, warned BLP.
‘The fact that a relief is rarely used is not necessarily a good reason for repealing it… Any proposed reform of a relief must, therefore, be tested against policy.’
The company’s head of tax, Michael Wistow, remarked, ‘There is considerable empirical evidence to suggest that lower tax rates and reduced reliefs raise more tax revenue… Therefore, removal of reliefs needs to be considered against the backdrop of applicable tax rates to properly encourage economic activity, rather than stifle it.’
He added, ‘Our tax system is out of balance because of an obsession with avoidance to the detriment of reliefs that could have stimulated growth. Continuing to focus a disproportionate amount of time on avoidance will stifle growth and deter investment. This will ultimately cost the Exchequer more than closing the tax gap will ever save.
‘The Office of Tax Simplification has the opportunity of a lifetime to be bold and take on the challenge of completely overhauling the parts of our tax system which are fundamentally broken,’ added Mr Wistow, whose employer has recommended an overhaul of the rules concerning controlled foreign companies, real estate investment trusts and stamp duty land tax.
These areas have become too complex, contradictory, and fail to encourage investment into the UK, claimed BLP.
