Published on June 19th, 2013 |
by Sam Mohr
Image © mikecco
The hypocrisy of clamping down on tax evasion
The recent G8 summit has been focused on two issues, Syria and tax avoidance. Whilst the majority of time is being dedicated to discussing how to combat the on-going brutal civil war that is currently claiming the lives of thousands in Syria, the other has focused on what is to many the mundane issue of tax.
George Osborne has pledged to end tax evasion. This is all very nice and utopian, however it is a completely pointless activity.
The whole debate was sparked by Google’s controversial activity where they were channelling their British business via Ireland in order to avoid paying the correct tax in this country.
Osborne wants to bring in laws to prevent this. The government have struck a deal with overseas British dependencies to attempt to share information on companies who base themselves in these tax havens to avoid mainland rates of tax. However, if an individual or a large company wants to avoid tax there will always be a way.
Any accountancy firm in the UK is likely to be able to advise businesses on how to organise accounts in order to pay the least tax.
For example private business owners can simply pay themselves through dividends with a low salary to avoid paying high rates of income tax.
We saw in France after Francoise Holland introduced a 75% top rate of tax, the well-known French actor Gérard Depardieu relocated to Belgium.
Tax is not something people enjoy paying. With some rates of tax in this country the highest earners have to give away up to half their salaries. Although this is not as extreme as in France, it is hardly popular amongst those who have to pay at that level. You might argue this is fair because they are earning so much. But the argument that they might have worked harder for it than someone who earns less does have strength.
The point I wish to make is that people and companies will always find a way to avoid tax without breaking the law. If they were so set on avoiding payment of tax, Google could simply relocate as much of their British enterprise as possible to a country where tax rates are lower.
The hypocrisy comes as our current government claims to be pro-business. Cameron refused to accept EU restrictions on the banks in order to prevent a mass exodus of our financial sector. Yet, having tax laws which are too restrictive, coupled with high tax, can only serve to scare off large businesses. This will result in fewer jobs, less investment and further hamper any chance of economic recovery.
Furthermore, as legal tax avoidance is so common, it is highly likely that many of the current government ministers and officials have themselves carried out actions to avoid paying the correct rate of tax.
Tax is something that governments will always attempt to reform, cut or expand. Although preventing tax avoidance seems like a nice idea when it is discussed around our dining tables, in real terms it is totally impractical and will in the long run impact our economy negatively.
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