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Scottish Business Group Prepares Tax System Blueprint

by Amanda Banks,, London

13 June 2014

A new pro-business organization has made the case for reforming Scotland's taxes as part of a wide-ranging economic strategy, which it believes could make Scotland among the top five wealthiest places in the world.

The proposals are outlined in a two-part report called Scotland Means Business, which was commissioned by N-56. The report is based on contributions from business leaders and a study by international economic consultancies. The report compares Scotland's current system with those of New Zealand, Singapore, and Ireland – countries which, the report says, have "used their tax codes aggressively to promote economic growth."

In particular, the report argues that tax should be reformed to promote innovation. Tax credits for research and development should be aimed at research and development (R&D) staffing costs, rather than spending (which is difficult to monitor or classify), and R&D support should be extended to financial services due to changing customer needs. However, the special treatment of profits from patents should be scrapped, the report says. The report also suggests measures to ensure a return for the Government for its investment in innovation.

Other proposals include special tax treatment for companies that base their headquarters in Scotland; a reformed personal tax regime to retain and attract highly skilled individuals in key sectors; VAT cuts; the abolition of air passenger duty to support tourism; and maintaining incentives for the computer games sector. It also calls for a review of the whole oil and gas tax regime.

The report also agrees with the Scottish Government that Corporation Tax should be reduced. It said that Scotland should compete "as a high quality rather than low cost location," but that income tax needs to be benchmarked against neighboring countries.

Taking the system in place in New Zealand as an example, the report also suggests fostering corporate equity through a dividend imputation system to ensure dividend income is taxed only once. Taxpayers would receive a credit for tax paid by companies in which they own shares, which would be offset against personal tax liability.

TAGS: individuals | tax | investment | economics | business | patents | value added tax (VAT) | fiscal policy | financial services | corporation tax | United Kingdom | oil and gas | tax reform | individual income tax | services | research and development | Tax | Scotland

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