Corporation Tax

A leading group of economists has called for corporation tax to be scrapped and an extra value added tax brought in to replace it.

The Institute for Fiscal Studies (IFS) claims the new system would address the mounting problems the Treasury has in taxing international businesses.

Globalisation and the subsequent surge in capital mobility and profits has led to tax competition and "significant difficulties" in taxing corporate income where it is earned or where investors live, according to the IFS.

By moving to a system which taxes value added by business, VAT could be increased and national insurance contributions cut, the think-tank claimed.

Robert Chote, director of the IFS, said: "Notwithstanding announcements by a couple more multinational companies that they are thinking of leaving the UK for tax reasons, the Treasury will be reluctant to abandon the domestic corporation tax while it continues to raise £50bn or so a year."

Alternative proposals include a "dual income tax" system akin to those used in Norway, Sweden and Finland which tax capital income at a low flat rate, well below the top rates on wages.

Individual investors would be given an interest income exemption from personal tax, partly to stop them hiding wealth in foreign tax havens.

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