Tuesday 26 November 2019

Sensible Taxation


25 Nov 2019 


During this election campaign, all parties are making promises (or threats) concerning taxation.  All these proposals seem to accept that the current system of income taxation is to be                   maintained, whereas it is quite obvious that this system was devised for a time when calculations were done by abacus and is not appropriate for an age of calculating machines let alone sophisticated computers!
It really is quite absurd that the amount of tax one pays varies from zero per cent up to £12,500 pa and goes up to 20 per cent to £37,500 and so on and so forth.  It would clearly be hugely more sensible to relate total income to total tax payable by a formula which governments could put in place and which allow an incremental tax rate to increase to a level and at a rate of increase they think is appropriate.  This should enable the government to be able to predict much more accurately than now how much income tax they could be expected to harvest in a given tax year. 

This formula would apply to all taxable income but there would obviously be an amount of tax which is not profitable to collect and that would be deducted from the total.  This would replace the current personal allowance and be available to everybody.  This would remove one of the more bizarre features of our current tax system - the withdrawal of the personal allowance between incomes of £100,000 to £125,000 per year income which leads to a marginal tax rate of 60% which then falls again to 40% and above £150,000 to 45%.  This is really ridiculous and a more rational income tax system would also discourage some of the complicated methods of tax avoidance which costs taxpayers a lot of money and robs the treasury of much income.

Another tax which urgently needs revision is inheritance tax.  The industry of avoiding inheritance tax probably costs more money than the tax itself yields. This should surely be replaced by a more sophisticated form of capital taxation which does not depend on death.  The present avoidance mechanisms are hugely complex and fighting them costs the revenue a great deal of money.  It is difficult to know exactly how to do this but there are examples in other countries where capital gain and/or capital is taxed on a more rational basis. 

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