Tax avoidance and the schemes big companies like Google use to reduce the tax they have to pay within the law have featured largely in the news lately. Much handwringing has occurred and a lot of shouting has been going on about how terrible capitalism and big business aree. But, as in many situations, this ignores the underlying causes of tax avoidance – which is how fiendishly complex our tax system is.
At the moment our tax code is over 17,000 pages long and so, unsurprisingly, makes it hard for people to know how much they are paying in tax and where it goes. Due to its complexity, there are also numerous loopholes in it, which are subsequently exploited. Considering I find it hard to read carefully through a document of over 20 pages it’s no wonder businesses feel sunk by a mountain of complex tax codes.
It is this complexity that causes tax avoidance, as a complex tax system leads not only to higher taxes but also to loopholes that incentivise tax avoidance. Companies would have no need to avoid taxes if they were lower and simpler. This would be because it would be much harder to avoid and there less of an incentive to do so.
As City AM editor Allister Heath reminds us, the complexity and absurd length of the UK’s tax system is the fault of UK parliamentarians. After all, the job of MPs is to debate and design our tax system through Parliamentary laws. But Parliamentarians seem to love the idea of appearing to do something.
This has led to a system of tax credits, taxes, tax breaks and much more which are about as helpful as a SatNav which sends you into a ditch. The uselessness of our current tax system is due to busybody MPs who can’t stop tinkering with a system whilst Rome burns.
As a supporter of Conservatives for Liberty, I am opposed to this. This is because I believe in Parliament making fewer laws, as laws frequently reduce freedom despite the best intentions, increase complexity and decrease personal responsibility. Our tax system is a case in point.
This doesn’t have to be the case. We could radically simplify our tax system by creating one single flat tax of about 30%, or even less, as the Taxpayer’s Alliance has pushed for. This would actually work out at less than the 40% people are currently paying, including National Insurance, and would be much easier to administer.
There would also be far fewer loopholes, making it harder to avoid taxes, which would create a system that is simple and implements lower taxes for everyone. This in itself would lead to an increase in jobs and disposable income. MPs should concentrate on this rather than haranguing Google for allegedly not paying what it owes.
If we want a competitive, fair and low, tax system which encourages peoples and businesses to work hard and discourages tax avoidance then simplifying the tax system is the way. It may appear less satisfactory than shouting at businesses like Google, but it is much more effective and would benefit everyone in the UK.