Business leaders warn of wealth drain under new income tax plan
John Swinney
Finance Secretary John Swinney’s proposals to replace Scottish council tax with a local income tax have come under fire from business representatives and tax experts who warn that it could discourage talented businessmen from staying in the country.
Under the proposals the council tax would be scraped for a more progressive tax, to be introduced by 2011/12, which would be set at 3p on the pound.
Russell Hall, head of tax for the Scottish branch of the accountancy company KPMG, warned that some might leave the country rather than pay the tax.
The new tax will be in addition to existing progressive form of taxation that people already pay: namely general income tax, which is greater for those that earn more.
Confederation of British Industry Scotland director Iain McMillan warned: “Higher levels of income tax in Scotland will send the wrong message to people in England and overseas about Scotland’s tax regime because Scotland’s effective basic and further rates of tax will be the highest in the UK.”
The new proposals have faced opposition from both the Labour and Conservative parties as well as from some unions and many from the business community.
The minority SNP government has been forced to turn to the Liberal Democrats in an attempt to win the necessary support for the plans.
Mr Hall also expressed caution as to the practicalities of implementing the tax. “They [HM Revenue and Customs] are very tight on resources,” he said, “and dealing with a complicated tax like this would be hard for them just now.”
However, speaking to the BBC, Mr Swinney seemed to indicate that he was hoping that HM Revenue and Customs would take on the responsibility.
The finance secretary said: “There is a lot of discussion to be undertaken with Revenue and Customs and they will be consulted.
“I hope they are willing to assist us in this particular initiative, because it would be an efficient way to go about the collection of the local income tax.”
HM Revenue and Customs have told the BBC that they did not handle local tax and stating that it would be the responsibility of the Scottish Executive to use its devolved powers to organise the tax if they created it.
Despite criticism, Mr Swinney argues that “scrapping the unfair council tax and the hardship it causes is based on the need for social equity, a strong society and good public services, all of which benefit all who live here, regardless of income.”
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