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Think Tank Calls For Scottish VAT Devolution

by Jason Gorringe,, London

19 April 2018

Reform Scotland, a non-partisan think tank, has called for value-added tax powers to be devolved from the UK Government to the Scottish Government, once legal restrictions imposed by EU law are lifted following the UK's from the European Union.

The think tank said: "Devolving VAT to the Scottish Parliament would mean that the Scottish Parliament would be responsible for raising 60 percent of what it spends, passing the 50 percent threshold for the first time. This would also significantly reduce Holyrood's reliance on income tax revenue."

The link between VAT and the performance of the economy has been a talking point for successive Commissions into Scottish devolution, the think tank pointed out, stating: "The Calman Commission said that the devolution of VAT had the 'potential to deliver accountability given its significant yield and the transparency to the population,' but [added] 'devolution of VAT to Scotland is precluded by EU law.'"

The Scotland Act 2016, which provides for the devolution of tax powers to Scotland, including limited income tax powers, assigns 50 percent of VAT revenues to the Scottish Parliament. The think tank suggested there may be political support for such a move, noting statements from government officials, both in Scotland and the UK, that VAT devolution may have been earlier discussed were it not precluded by EU law.

Commenting, Reform Scotland's Chairman, Alan McFarlane, said: "Whilst we supported the principle of devolving income tax to the Scottish Parliament, we have consistently expressed concern that the Scottish Government's powers are so heavily dependent on one tax. The devolution of VAT, adding a consumption tax to an income tax, would help address this problem. Politicians have previously acknowledged the benefits of devolving the tax, but it was never previously possible due to EU law. Brexit removes this impediment.

"We hope that the Scottish Conservatives still recognize the benefits of devolving VAT and will argue its case, along with politicians from other parties in Scotland. Although the politics of this issue are critical, so are the economics. Devolving VAT would rapidly focus minds at Holyrood on promoting economic growth because of its direct link to tax revenue, and it would also give the Finance Secretary an important extra tool to change outcomes through tax policy."

TAGS: Finance | tax | economics | value added tax (VAT) | VAT legislation | law | United Kingdom | legislation | Europe | Scotland

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