Moral vs Legal: The Tax Debate
Though the issue of corporate tax avoidance has long been a topic which would find its home in the business pages, it has recently become a regular fixture on the global news agenda thanks to high profile scandals, such as the recent HSBC news.
What’s more, global brands such as Google, Starbucks and Amazon have faced heavy criticism for the level of corporation tax they pay in the UK.
On top of this, a number of high profile celebrities have been caught up in their own personal tax avoidance scandals, bringing the issue to the forefront of the wider public’s attention.
As a result, public interest in this issue has grown considerably. Many have responded with understandable outrage at reports that some companies and high profile individuals have not been paying their ‘fair share’ of tax.
This has raised subsequent questions as to how we can define specifically how much this ‘fair share’ is. In the eyes of the public, tax has now become just as much a moral issue as much as it is a legal one.
In the wake of this negative press and public backlash, other businesses have actively sought ways to reassure consumers that they are playing fair when it comes to tax, proudly sporting a kite mark, which seeks to prove this.
It is important that in any tax system clarity and certainty are paramount. However if we begin to view tax as a moral issue rather than a legal one, we risk blurring the boundaries and increasing uncertainty in a system that is already in serious need of attention and reform.
What is necessary is a system which clearly and simply sets out by law, just how much every business and individual should be paying.
Due to this lack of clear guidance, a grey area has now become apparent between socially acceptable tax avoidance and deliberate tax evasion.
A large number of us engage in tax avoidance in one way or another, whether through the use of ISAs to our personal tax allowance and making use of tax free pension contributions of up to £40,000 a year.
While these allowances are taken advantage of on a daily basis, we’re now seeing increasing confusion between legal avoidance and illegal evasion of tax, which is making the lines of legality unclear, with a subsequent negative impact on the system.
Similarly, we must also keep in mind that there are certain ‘loopholes’ within the tax system for legitimate reasons.
Therefore while the government seeks to close off certain loopholes used in the wrong way by corporations, there are others in place which in fact benefit the wider economy, such as to incentivise and support growth in a specific industry element of business or to improve the work/life balance of our workforce.
CEO of Microsoft Bill Gates recently spoke of a risky and increasing ‘second standard’ increasing in business in relation to how much tax companies pay, which has introduced uncertainty. He has publicly highlighted the need for a clear and transparent tax system, stating that if we want companies to pay more tax these rules should be changed.
I agree with him here that the paying of tax is a legal issue and if we want to overcome complex tax avoidance the most efficient way to achieve this is through legislation.
Also crucial to note is that this ‘second standard’ offers unscrupulous politicians a platform from which to lace blame on businesses at times when they are in need of a popularity boost or to explain away the difference between revenue and spend.
The obligation for businesses to pay their fair share of tax while also keeping low the amount they are legally required to pay in order to attract organisations to do business in the UK and increase tax revenue results in an unclear system in which businesses aren’t clear on just how much they should be paying.
A further impact is that the Government then cannot predict how much revenue it will receive. The result is then a blurred view on both sides when it comes to painting a clear picture of the resources they will have at their disposal.
Tax as a moral issue moves the responsibility of deciding how much tax to pay away from its rightful place with legislators, onto the shoulders of businesses and individuals.
The result is a complex and often confusing system.
With the right legal processes and checks in place we can create a structure that is cleaner, simpler and better understood by businesses and individuals alike.
We must read beyond emotive headlines on the issue and remember that taxation simply isn’t a matter for the moral compass; it’s a matter of law. It will be extremely interesting to see how this issue plays out in the upcoming pre-election Budget and how the Government reacts to recent scandals in order to calm public outrage but also ensure the validity of our taxation system.
