Is Corporation Tax Morally Flawed?

Backbencher April 26, 2013 0
Is Corporation Tax Morally Flawed?

Paul Parkinson considers the case for abolishing Corporation Tax on moral/ethical, rather than fiscal/economic, grounds.

There has been much debate of late questioning the “morality” of anyone seeking to maximise their tax efficiency. On this occasion, though, I want to ponder whether the imposition of Corporation Tax can be viewed in itself as immoral, especially from the perspective of ordinary people.

The legal authority for the UK government to collect taxes must be renewed annually by Members of Parliament passing the Finance Act, so the democratic justification for taxation is said to stem from the fact that the electoratedice tax can, at general election time, take into account the tax policies of the various political parties before voting.  With this in mind, perhaps there is a legitimate question to ask as to whether those who don’t have the voting franchise in any given country should be subject to the taxes of that same country.  An example of this could be the 289,000 Canadian school teachers who collectively own Camelot, the UK’s National Lottery operator, via their Occupational Pension Scheme. Camelot will be liable to Corporation Tax on its profits, so the dividends the Canadian Teachers’ Pension Scheme receives will be distributed after tax has been paid: yet those 289,000 teachers cannot vote on the tax raising & spending policies of the UK government, despite having to make a financial contribution via their investment asset.

Some people will say “tough…those teachers shouldn’t invest in Britain if they don’t want to pay Corporation Tax in the UK”. But that is an incredibly simplistic stance to take, since members of occupational pension schemes, e.g. CalPERS’ (California Public Employees’ Retirement Scheme) 1.6 million members & LGPS’ (Local Government Pension Scheme in the UK) 4.6 million members will have no personal say regarding what individual stocks their pension fund invests in. Furthermore, even if such control were possible, competent investment managers with a collective fund the size of CalPERS ($260 billion) will spread the risk, of incurring losses in any individual country’s economy by investing in a range of stock exchanges around the world simultaneously. Furthermore, even if a scheme like LGPS wanted to defy first principles of portfolio management by not diversifying, any purchase of shares in global companies like HSBC or BP will by default achieve diversification due to the majority of those turnovers being generated overseas.

Companies, as entities, are conduits of significant revenue for the UK Exchequer, even if Corporation Tax didn’t exist; (Numbers are per annum)

 

TRANSACTIONAL

Value added tax

£107 billion

Excise duties

£47 billion

 

eg. If the Base Cost of a VAT-able item or service is £83.33, then the full retail price will be £100.

 

PAYROLL

Income Tax

£155 billion

National Insurance

£107 billion

 

eg. If an employer can afford a £30,000 p.a. total unit cost for an individual employee:

 

Full payroll cost

£30,000

Employer National Insurance

£2,705

Gross Taxable Salary

£27,295

Income Tax

£3,571

Employee National Insurance

£2,346

Net Income

£21,378

 

 

Let’s not overlook the fact all the above Transactional & Payroll costs are not “paid” by the companies but instead “collected” by them from their customers & employees on behalf of the government.  But common sense suggests that, if the electorate are content to vote in a government which imposes a 20% surcharge on consumer spending, & takes almost 1/3rd of the incomes of even average earners as tax, then those same voters should expect to be themselves the ones who have to pay those taxes from their salaries & personal expenditure.

The conclusion I have drawn is that the annual imposition of Corporation Tax, in circumstances where the shareholders neither live nor work in the country & do not have the voting franchise with which to express their opinion on the tax raising & spending policies of that country’s government, is morally dubious.  When one adds into the equation the practical application deficiencies, together with its regressive nature, I would advocate that Corporation Tax be scrapped in its entirety.

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