Experts warn on local income tax
4 Aug 08
Consultation on controversial laws to replace council tax in Scotland with a local income tax has closed, and despite concerns from a range of professional and business bodies, the Scottish National Party administration in Holyrood insists that its proposals will get the support of the majority of voters
John Swinney, secretary for finance and sustainable growth said: “Scotland needs a local tax system with fairness at its very foundation – based on the ability to pay.”
The reform would replace council tax, levied on property, with an additional 3p in the pound on the earned income of taxpayers resident in Scotland. It would be set centrally and collected on behalf of the Scottish government through HM Revenue & Customs.
The SNP argues that most taxpayers would be better off under LIT, but a number of professional bodies representing financial experts, including ICAS and the Chartered Institute of Public Finance and Accountancy, as well as business bodies such as the chambers of commerce, the Institute of Directors and the Federation of Small Business, have expressed fears that LIT will be expensive, uncertain and difficult to administer, and also that creating a visible tax differential between Scotland and the rest of the UK could deter skilled workers and businesspeople. (For more details of the ICAS submission see Institute, page 76).
The proposals narrowly won approval from the Confederation of Scottish Local Authorities (COSLA).
ICAS’s executive director, David Wood, said: “At the moment, we do not see it [LIT] as workable. We would be happy to talk to the Scottish government to help make it work.”
ICAS has a number of concerns including the risk that some individuals would be able to manipulate their residence status or the categories their income falls into.
Rhona Irving, PricewaterhouseCoopers tax partner and head of the firm’s Scottish tax practice, commented: “It is still not clear how workable the proposals would be and we believe more research into the rate of tax that would be needed to replace the amount currently collected by council tax is required.”
She added: “Many people are also concerned that the cost of collecting the tax will have an impact on business and will fall most heavily on the shoulders of the small businesses, the lifeblood of Scotland.”
The Royal Institution of Chartered Surveyors in Scotland (RICS Scotland), which represents local authority assessors, is concerned that collection rates could fall and that higher income tax could make Scotland uncompetitive for investment. Its Scotland director, Graeme Hartley, commented: “Experience has shown that taxes from property are easier to collect than from people.”