Tackle Tax Avoidance through System Reform, says IoD

16 May 2006

Comprehensive reform of the tax system is the only effective solution to tax avoidance, business leaders claimed today. In a wide-ranging study of tax avoidance, the Institute of Directors (IoD) advocates redesigning the entire tax system to scrap the current artificial boundaries between things that are close commercial substitutes.

With taxpayers finding ever more contrived ways around anti-avoidance legislation and the Government proposing ever more complex legislation in response, the employers’ organisation insists radical action is needed.

Richard Baron, Head of Taxation at the IoD said:

“Reforming the tax system would obviously not be an easy task. It would mean some drastic changes.  However, the task may still be worth undertaking as the current approach is leading to an impossibly complex and confusing tax system.”

The IoD report highlights the moral ambiguity of tax avoidance, acknowledging arguments against avoidance such as competition distortion - those who engage in extensive tax avoidance pay less tax than those who do not. But, while it is true that some businesses present more opportunities for avoidance than others – for example avoidance is much easier for financial institutions than it is for engineering firms – the fault lies with the tax system itself.

While tax avoidance cannot be celebrated, no-one has the moral standing to say that a business has acted wrongly if it acts within the law to reduce its tax burden, the report argues.     

Richard Baron said:

“There is plenty of scope for a debate on what is or is not acceptable avoidance, if we take the view that we do have duties to each other. Both general principles and specific examples have their place in that debate. The Government has every right to participate, but it will do so as an equal of all the other parties to the debate, not as an authoritative source of answers.”