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Would a ‘flat tax’ simplify the UK’s corporation tax legislation and reduce the associated compliance costs?

Jelfs, Peter David (2010)
M.Res. thesis, University of Birmingham.

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Abstract

Most parties with an interest in UK tax law appear to be able to agree on one thing: it is complex. Surveys show that the UK tax code is now the longest in the world, having recently overtaken India to claim that dubious title. It is equally the case that the amount, as well as the complexity of the legislation, increases every year, leading to increasing compliance costs for business. One of the more stimulating tax debates of recent years in the UK has been over the merits of a flat tax. While to date the debate has focussed more on issues such as a potential economic stimulus on the introduction of such a tax, an important claim of flat tax supporters is that its introduction would simplify the current UK tax legislation. There would therefore appear to be a clear and worthwhile link to explore between the complexity of the UK tax legislation and whether a flat tax might reduce it. However, little work has been performed to date on investigating such a link, either at a theoretical level or by considering data from countries that have introduced tax systems described as flat taxes. This might seem surprising considering the current substantial costs to business in complying with the UK tax legislation. The exploration of this link is the key focus behind this thesis. This thesis only considers the case of corporation tax from among all the UK taxes due to time and length constraints. Many other countries have similar taxes known as ‘corporate income tax (CIT)’, which is levied mainly on companies, as opposed to ‘personal income tax (PIT)’, levied mainly on individuals. Where this thesis refers to ‘income tax’ this should be taken to refer to the latter, in line with current UK practice. The thesis starts with a brief introduction to UK corporation tax and the theoretical background to a generic corporation tax. It then considers the nature of the current UK tax legislation and its apparent complexity, before looking at the corporation tax compliance costs incurred by UK business. The fundamental issue of complexity of a tax system is a topic of sufficient magnitude to merit its own chapter, followed by a detailed examination of the concept of ‘flat tax’, considering both the theoretical Hall-Rabushka (HR) model and the real-life Eastern European flat taxes introduced. Potential simplifications for the UK of a flat tax are then considered, followed by evidence as to why a flat tax would not be the simplifying force that might be hoped. The final two chapters consider real-life evidence and data, factors conspicuously absent in the UK flat tax debate to date. Evidence from those countries, mainly from Eastern Europe, that have introduced flat tax systems is considered, followed by a case study covering the proposed recent changes to the UK’s capital gains tax and the lessons it provides for any simplifying tax reform.

Type of Work:M.Res. thesis.
School/Faculty:Colleges (2008 onwards) > College of Social Sciences
Department:Birmingham Business School
Subjects:HJ Public Finance
Institution:University of Birmingham
ID Code:1172
This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder.
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