Legal & Finance: No Rush for Flat-Rate Income Tax System

The Birmingham Post (England), August 26, 2005 | Go to article overview

Legal & Finance: No Rush for Flat-Rate Income Tax System


Byline: By John Duckers Business Editor

Flat rate income tax rates might be appealing, reduce tax avoidance and evasion and promote faster economic growth but they are unlikely to be instituted in the UK - at least in the foreseeable future, according to experts at the Birmingham office of Haines Watts.

Although commentators believe a flat rate income tax looks set to become a significant talking point, there is unlikely to be legislation in this Government's life-time, said Terri Halstead, tax adviser at the accountancy firm.

Countries that have already adopted flat rates of tax include Hong Kong, Romania, Russia and Lithuania.

"The arguments for a flat rate of income tax are appealing - although not to the Chancellor in the short term," said Ms Halstead.

Specifically, a flat rate of income tax is likely to reduce compliance costs, tax avoidance and evasion and help achieve faster economic growth.

"Numerous studies have shown that reducing taxes and compliance costs would enable the economy to grow faster than it would otherwise, stimulating business resulting in increased wealth for the population.

"People will be better off with the saving from each taxpayer fluctuating between 12 per cent for those around the average yearly wage to 0.2 per cent for those in the highest earning bracket," said Ms Halstead.

However, the biggest factor against a flat rate of income tax is a short-term reduction in Government revenue.

Initially, it is forecast that the taxation revenue received by the Government would be reduced by as much as six per cent of GDP - pounds 65billion. This would be offset to some extent by the immediate reduction in compliance and enforcement costs.

Ms Halstead added: "Some studies have shown that the offset will be completed within three years and from then forwards, various reductions will actually increase the effective amount the Government is receiving. …

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