Scottish Income Tax Proposal Deterring Investment

by Jason Gorringe, Tax-News.com, London

12 January 2009

The Scottish arm of the Confederation of British Industry (CBI) has warned that a plan to introduce a local income tax in Scotland from 2011 is warding off potential business investors.

Iain McMillan, director of CBI Scotland, said on Wednesday that he knows of a number of businesses that have put their investment plans in Scotland on hold while they await the outcome of a vote on the proposal in the Scottish assembly later this month.

"It really is time the Scottish government threw in the towel on this and stop telling business that they think that a local income tax will be good for business," McMillan said.

Alex Salmond, SNP leader and the First Minister of Scotland, has proposed to replace council tax from April 2011 with a local tax on workers, set by councils, up to a limit of 3p in the pound. The SNP claims that the vast majority of Scottish council tax payers will be better off under the new system. However, the CBI and other business groups have warned that the proposals will be costly for companies to administer and lead to claims by employees for higher wages to compensate for the loss of income.

In a submission to an enquiry on the proposals by the Scottish parliament last year, CBI Scotland noted that: "Evidence from abroad has found that relatively high personal income tax levels act as a restraint on business start ups, as well as on investment and hiring of staff undertaken by micro businesses."

McMillan added at the time of the submission that: "Our members have supported the freezing of the council tax. However, the devolved government has failed to make a convincing case for changing the local tax system, or for placing on the shoulders of employers the responsibility for calculating and assessing each individual employee's tax liability, deducting this amount and then remitting it."

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