Sunday, 9 December 2012

Dealing With Corporation Tax Avoidance

The recent media furore over the fact that Starbucks and other companies have paid very little, if any Corporation Tax, in the UK, has highlighted only what has been known to Marxists for a long time - Capital can always find ways of avoiding paying tax, leaving workers to pick up the tax bill.  Not only can Capital always employ more sophisticated lawyers and accountants to exploit the tax laws, but, at the end of the day Capital can always move its operations to some other lower tax area, with a consequent negative effect on the economy out of which it has moved.  Indeed, the creation of a single European State, with a single Fiscal and Monetary Policy is a priority, as one means of preventing Capital being able to exploit the different tax regimes of different countries.

But, there is another way by which Capital can be given a harder life in avoiding tax.  That is to scrap Corporation Tax altogether, and repalce it with a Turnover Tax.  Corporation Tax is levied on company profits, and as we've seen companies can use a variety of means by which to reduce the reported level of profits, and thereby avoid paying tax.  But, that does not apply to a Turnover Tax, which is more properly an equivalent of personal Income Tax.  A Turnover Tax would be levied on all of the income of any company earned in the UK.

That is not the same as VAT.   VAT, is a Value Added Tax.  So, every company, registered for VAT, is able to recover the VAT it has paid on its purchases.  Ultimately then, VAT ends up as a tax not on companies, but on the final consumer i.e. on workers, because unlike companies, cosumers/workers cannot claim back the VAT they have paid.  But, a Turnover Tax is a tax directly on the companies income.

The objection to such a Turnover Tax raised by Capital is that it is paid by Companies whether they make a profit or not.  But, that is no real objection from an economic standoint.  On the contrary, it is an icnentive for companies to maximise their efficiency so that they do make profits.  In fact, the more efficient a company became the more it would be rewarded by such a tax, because its profits would rise as a proportion of income, and thereby of the tax paid, and so leave it more profit left over to accumulate and grow the business!

But, the objection is no objection for another reason.  That is that this objection is not raised against workers having to pay Income Tax.  Corporation Tax, as a tax on profits thereby allows companies to deduct the expenses they incur in producing and selling their commodities.  If workers were allowed to do that they would pay no Income Tax!  The only commodity a worker has to sell is their Labour Power.  But, that commodity, like every other commodity has a cost of production.  The worker has expenses to meet, before that labour-power can be produced, so that the worker can sell it.

The worker has to buy food, shelter, clothing, pay for their own education, healthcare, transport to work and so on, as well as taking out insurance to cover periods when they are sick, too old to work, when work is unavailable and so on.  All of these are costs that the worker has to pay out to produce their commodity labour-power, before they can sell it.  If the worker were able to set off all of these costs of producing that commodity against the income they receive from selling it, they would pay no tax, because the costs on average equal the income.

In fact, were workers able to make the same percentage profit on selling their labour-power, that other sellers of commodities obtain on average from selling theirs, then there would be no profits!  That is because the profit obtained by everyone from selling would be cancelled out by the loss they make (amount over the cost price they pay) in buying.  But, of course, workers cannot make any profit on selling their labour-power, because a condition of Capital buying it is that the worker must provide an amount of unpaid labour to Capital.  On average the worker is only paid the Value of their Labour Power i.e. the cost of its production.

So, a Turnover Tax would mean that Capital is only taxed on the same basis that workers are taxed.  What companies selling commodities in the UK earn on that basis, is much harder to hide.  Their Turnover is what it is, far more unambiguously than is their profits.  Of course, companies might be tempted as a consequence to base themselves in Britain, produce here, but export their commodities to some other country.  On that basis, if they did not sell those commodities, and had no turnover here, they would be liable for no tax upon it.  But, of course, if that had the effect of encouraging companies to base their production here, it would hav very real economic benefits, in terms of the provision of jobs, and the consequence of that would be that Tax and National Insurance would be payable.

Moreover, to the extent that such comapnies based their production here, and then sold into the EU, it is yet another reason why we need an EU State, with a single EU  Fiscal and Monetary policy.  In the United States, it does not matter whether a company bases its production in Texas, and sells the majority of its output in Florida, because the taxes it owes to the Federal Government, would still be collected.  The same would apply to an EU state.

Rather than spending huge amounts of resources trying to keep up with every loophole found by the tax accountants, HMRC should suggest scrapping Corporation Tax, and repalcing it with a Turnover Tax, at a suitable rate.

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