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Sky Views: Hiking business tax may be regarded as carrying little political risk | Business News

It’s felt at times like open season on big business so far as the political parties are concerned in this election campaign.

Boris Johnson announced at last week’s CBI conference that he would not, if re-elected, be pressing ahead with the cut in the rate of corporation tax from 19% to 17% previously promised by the Conservatives.

Jeremy Corbyn and John McDonnell, meanwhile, propose raising the rate of corporation tax to 26%, nationalising swathes of British industry and introducing a financial transactions tax.

Most damaging of all, so far as the majority of business leaders are concerned, is Labour’s proposal to take 10% of the shares of companies which employ more than 250 people, without compensation, to place in a so-called “inclusive ownership fund”.

The Liberal Democrats, for their part, would raise the corporation tax rate to 20%.

The temptation for all three parties to try and extract more from businesses is understandable.

Businesses, apart from in local elections for the City of London Corporation, do not have votes – even though their employees and their owners, the shareholders, do.

So hiking taxes on big businesses – small business are a different matter – may be regarded in some quarters as carrying little political risk.

Indeed, when Mr Johnson announced he would not be cutting corporation tax as previously promised, it was noticeable there were not exactly squeals of indignation from the CBI’s members.

Boris Johnson speaking at the CBI conference

PM postpones corporation tax cut

That may reflect a tacit recognition on the part of businesses that their tax burden in the UK is, globally speaking, comparatively light.

The UK’s corporation tax rate is well below the average for both the EU and the OECD group of developed economies.

The competitiveness of the UK’s tax regime was further borne out this week in the latest annual study of tax administration around the globe produced by the World Bank and the accountancy and professional services firm PwC.

The Paying Taxes 2020 report reveals that, last year, the overall ‘tax and contribution rate’ (the amount of taxes and mandatory contributions as a proportion of a company’s profit) in the UK was 30.6%.

That compares with a global average of 40.5% and is significantly lower than European peers such as Germany (48.8%) and France (60.7%).

Looking further afield, it is also lower than other major global economies such as the United States (36.6%) and Japan (46.7%).

Of the G7 club of the biggest rich nations, only Canada imposes a lower burden, with a tax and contribution rate of just 24.5%.

But the overall tax rate is only one factor that goes into making a country attractive to businesses.

The PwC and World Bank report, now in its 14th year, makes clear countries everywhere are making it easier for businesses to pay taxes.

This is partly thanks to digitalisation, with the likes of the Cote D’Ivoire, the Kyrgyz Republic and Israel among those who have significantly taken steps during the last 12 months to reduce the burden of complying with taxes.

So it is not just a case of cutting corporation tax.

And, again, Britain scores favourably compared with elsewhere.

The amount of time it takes a typical business to prepare, file and pay three major types of taxes (corporation tax, VAT and payroll taxes like income tax and national insurance) in the UK is less than half the global average.

Indeed, when Mr Johnson announced he would not be cutting corporation tax as previously promised, it was noticeable there were not exactly squeals of indignation from the CBI’s members. That may reflect a tacit recognition on the part of businesses that their tax burden in the UK is, globally speaking, comparatively light.

Ian King, business presenter

It was also less than it would take that business were it based in almost all of the country’s major international competitors.

Only a handful of countries renowned for having ultra-competitive business tax regimes, like Hong Kong, Luxembourg and Ireland, compared favourably with the UK.

Nor is it the case that businesses are crying out for further cuts in corporation tax.

Helen Dickinson, chief executive of the British Retail Consortium, told Sky News this week that none of her members had expressed unhappiness about Mr Johnson’s decision not to press ahead with the previously promised reductions.

Her members, she noted, are far angrier about imposts like business rates.

However, spend any time looking at the PwC/World Bank report and it quickly becomes apparent most countries are trying to reduce the burden of business taxation, both in terms of the overall rate and the regulatory hassle involved in paying taxes.

Singled out for praise is Romania, which took the axe to half a dozen individual taxes on businesses, while China and the US have also been cutting business taxes.

For a good example of how not to do it, look at India, whose government has been at war with the country’s mobile phone operators for the last 14 years over the amount of tax they pay.

Paul Johnson is Director of the Institute of Fiscal Studies

Tory and Labour tax and spending pledges questioned

The government claims it is owed some $13bn (£10bn) in spectrum and licence fees and, last month, the Supreme Court found in its favour.

The biggest portion of that would fall on the second-largest player in the market, Vodafone Idea, in which the UK’s Vodafone Group owns a 45% stake.

Under the court ruling, unless the Indian government intervenes, the joint venture has just three months to pay $4bn (£3.1bn) in fees although, due to penalties and interest, the eventual bill may be higher still.

Nick Read, Vodafone’s chief executive, visited India last month to ask the government for relief against the penalty and New Delhi has since agreed to defer upcoming spectrum payments for the next two years.

However, without relief from the government towards the overall total, analysts are speculating that Vodafone Idea may not remain solvent.

That would be a disaster for India and not just because, having invested a total of €19billion since 2007, the company is India’s biggest foreign investor.

If Vodafone Idea, which has more than 300 million customers in the country, were to exit the market, India would be left with just two mobile operators – stifling competition, innovation and choice.

Ironically, in response to the slowing economy, Narendra Modi’s government announced big cuts to corporate taxes in September.

It is unlikely to undo the damage done by India’s treatment of mobile operators.

Accordingly, while the UK currently has a competitive tax regime for business, it should not be resting on its laurels.

Capital is more mobile than ever and with the nature of company assets moving increasingly from ‘tangibles’ like machinery and buildings to ‘intangibles’, such as intellectual property, brands and patents, it is easier than ever for businesses to relocate from one jurisdiction to another.

It feels more likely that, a decade hence, other countries will have moved their corporate tax rates closer to those of the UK rather than the other way round.

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously on Sky Views: Rowland Manthorpe – Automatic voter registration is possible, but is the risk too high?

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