Simplifying tax is fairness

Fair Tax Week has now ended, abruptly and ironically into the alternative mindset represented by Amazon Prime day, the festival of online selling invented by the ubiquitous and dominant web sales hub.

Many don’t buy from Amazon because of its low tax payments. My personal objection to Amazon is more fundamental. Given that it makes no profit whatsoever from its core internet sales business — losses there are subsidised by oddly somnolent shareholders and the remarkable profitability of the cloud business AWS — it’s not surprising in many ways that it pays no tax. It is also not surprising that it can therefore undercut businesses that are obliged to make sufficient profits to provide a return to their investors. I’d personally rather buy from such businesses, supporting them against what is unfair competition. The fee structure of Amazon Prime looks like the company’s first proper attempt to start requiring its online shopping customers to pay something like the economic cost of the services it provides, a mere 25 years from the company’s founding.

France has chosen the same moment to renew its push for a form of formulary apportionment (see Talking with the Taxman about Fairness). Its proposal is of the bluntest form, and perhaps all the more interested for that, setting a tax rate of 3% of revenues. As discussed in that earlier post, the benefit of formulary apportionment methods, particularly ones that are based on sales, are that they remove the incentive that companies currently feel to shift their profits into other, lower taxed markets — whether through high interest or intellectual property payments, or other less transparent ways.

And this removal of incentives to manipulate may actually be beneficial for companies. As the spokesperson for Lush said at the launch event for Fair Tax Week: 

“If you’re shifting profits and fiddling figures you can’t know what is going on in your core business, you can’t know the truth about your business. You need transparent tax for a healthy business.”

One highlight of my Fair Tax Week was a further coincidence rather than a formal part of the week’s agenda: CSFI hosted a roundtable discussion on Simplifying the UK’s tax system. This featured the estimable Kathryn Cearns, newly chair of the Office of Tax Simplification, and Bill Dodwell, the OTS tax director. While Kathryn and Bill studiously avoided the use of the term fairness, it was apparent that their focus on simplification — particularly in removing loopholes, smoothing the undue impact of thresholds and removing other distortions — should generate greater fairness, or at least reduce unfairnesses, in our tax system.

Other speakers were less shy of talking directly about fairness. In particular, the issue was focused on by the two main respondents to the talk, Carys Roberts from IPPR and Catherine McBride from the IEA, among others. There were some remarkable coincidences of view across many of the participants in the discussion. Not least of these was quite a broad agreement that it is time to equalise tax on income from work and from wealth — it is one of the great unfairnesses, and a source of much wasteful structuring, that capital gains taxation and other income from wealth benefits from a lower tax rate. There is nothing progressive about that, and certainly nothing fair.