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Think Tank: Devolve VAT To Scotland

by Amanda Banks,, London

08 September 2016

Think tank Reform Scotland has called for the devolution of full power over value-added tax to the Scottish Parliament upon the UK leaving the European Union (EU).

The recommendation was made in Reform Scotland's submission to the Scottish Parliament's European and External Relations Committee's inquiry into Scotland's post-referendum relationship with the EU. The Committee called for comments on "the implications for the devolution settlement of withdrawal from the EU."

Reform Scotland's Director, Geoff Mawdsley, said: "The devolution of VAT would enable Holyrood to raise a sum roughly equivalent to that of income tax. Crucially, it would broaden the range of devolved taxes, which would present a better opportunity for tax reform, and mean that the Scottish Parliament is responsible for raising 63 percent of the money it spends."

Under the Scotland Act 2016, the Scottish Government will receive half of the VAT revenue raised in Scotland, worth approximately GBP4.5bn (USD6bn) a year. When the Act was passing through the UK parliament in December 2015, the then Financial Secretary to the Treasury, David Gauke, said that control over setting VAT rates was not being devolved to Scotland "because EU VAT law does not allow for differential VAT rates within a member state."

According to Mawdsley, "With the UK voting to leave the EU, there is no reason why the UK Government cannot give a commitment to devolve VAT in full to the Scottish Parliament once we have formally left the EU. With income tax being the only major tax to be devolved under the current proposed settlement, over two-thirds of all tax revenue raised by Holyrood will be from that single source. This over-reliance on income tax means there is little scope to effect real reform and create a better environment for economic growth."

TAGS: VAT rates | tax | law | United Kingdom | ministry of finance | tax reform | European Union (EU) | Europe | Scotland

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