Home > Uncategorized > Turnover Tax. A solution?

Turnover Tax. A solution?

corporatetaxes450The whole issue of large corporations not paying their “fair share” of tax is continuing to hit the headlines. Whether it be from UKIP or the far left there is an increasing demand that “something must be done”.

Understandable of course and the figures look quite horrific when examined in even a cursory manner. A smaller domestic retailer is hamstrung by all the tax demands whilst a global corporation can use its network to “manage” its liabilities. A perfect example of this is Amazon shipping music VAT free from Guernsey but even more pertinent is the corporation tax havens that exist within the EU, namely bailed out Ireland and Luxembourg

First and foremost that is an issue that requires addressing immediately. If the EU cannot harmonise corporation tax then its reputation for obsessing over the small and irrelevant whilst making a mess of the bigger issues is vindicated

But tax havens will always be with us. It will be impossible to have a universal tax regulation.

So what is the solution?

One idea that is frequently promoted is a Turnover Tax. Simply this is a levy against a business’s turnover. This would be easy to collect of course but there are disadvantages.

Perhaps the most striking issue is that of reinvestment of profits. Believe it or not, many businesses do actually reinvest and successfully to. Corporation tax is rightly levied on pure net profit after any investment. Turnover tax will hit regardless.

Secondly certain businesses will collapse. This is not because they are unprofitable or running too tight a margin but because they will quickly become uncompetitive. A small margin in certain businesses is not an overly tight margin. How so?

A perfect example of this would be Media buying. Agencies buy media space on tv, in the press and across all medias and charge a small commission. The nature of the transactions means that the turnovers can be huge. If the tax was say 1% or this businesses turnover then quite frankly that would be close to all its gross margin. The agency would have to double its commission with the natural result that the client will look to other markets for a similar service. Not good and in addition there is the feeling that businesses that are struggling through a difficult time economically really need support rather than taxation. Although some may suggest that turnover tax could be applied selectively (above a certain turnover perhaps) my feeling is this may not be legally enforceable.

Some rather loud mouth and less than intelligent “campaigners” will constantly claim that the profits are going to “the elite” and whoever or whatever is their latest green eyed target. The fact of course is rather different and very mundane. Most corporations are owned by huge numbers of shareholders and many of these are pension and investment trusts. Thats your pension and mine

Is there an answer to this? My feeling is that corporations need to be bullied into paying a reasonable amount. Having seen how revenue and profits can be reported and transferred around the globe Im unsure whether it will ever be possible to nail down taxation completely. It will come down to a bit at a time with perhaps the Starbucks and Amazons of this world being made well aware that the uk market conditions may not always remain entirely favourable to them

My concern is the disadvantage to smaller producers and retailers. Amazon could certainly become too dominant and do we really want to see our high streets disappear?

There was a similar issue with brewers a few years back and to his credit Gordon Brown brought in legislation making it far easier to for small brewers to trade. The result has been an explosion of micro breweries as well as specialist distillers (especially Gin). The customer has benefitted from great and quality choice and the big brewers have been forced onto the back foot

Is this the way forward? Should high street book sellers have certain tax advantages and maybe even truly independent coffee shops?

That would be something for Amazon and Starbucks to ponder

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