Tax gap analysis is helpful but bigger issue is on how to update the international system to reflect today’s world, says KPMG
Commenting on today’s tax gap analysis published by HMRC, Chris Morgan, Head of Tax Policy at KPMG in the UK, said:
“It’s encouraging to see the tax gap reduce but HMRC’s figures show that, although there is scope to increase the tax take, there is hardly a ‘magic money tree’ out there in terms of the amount of tax that goes uncollected under the current rules. Their analysis, which runs to 77 pages and is the result of very comprehensive and robust methodologies pulling in data from various sources, shows that the difference between the tax that is actually collected and the tax that HMRC believes is due under current rules was £34bn in 2013/14 which is a reduction to 6.4% of the total tax take – down from 6.6% in 2012/13 and from 8.4% in 2005/6 which is the earliest estimate available.
“Well researched, robust data is key to being able to measure progress so it’s to HMRC’s credit that it provides such a comprehensive analysis.
“The hidden economy (ghosts and moonlighters) is now the biggest single component of the tax gap – perhaps a result of more unofficial cash in hand type working going on. Looking at the corporation tax gap, the figures show it has reduced by just over half since 2005/06 with corporate tax avoidance now accounting for £1bn of a total of £2.7bn in overall avoidance (down by almost half from a total of £5.0bn in 2010/11) and reflecting a wider sea change in corporate attitudes over the past ten years.”
“There’s a lot of debate about how much tax is paid vs how much tax should be paid with some saying that the tax gap is significantly larger than the official figures. It’s important to note that the tax gap is the difference between what is actually collected and what is due under the prevailing legislation, not what could be collected if policies and rules were changed.
“Today’s figures are all in relation to the current, domestic rules on tax and concern historic data. Arguably, the bigger issue as regards corporates is less around how the current rules operate and more around what kind of rules we need in the future to cope with a rapidly evolving, globalised and digital world. The OECD published its recommendations on tackling base erosion and profit shifting (BEPS) earlier this month. There are huge questions to answer around issues such as where the boundary lies between tax competition and unfair tax practices on an international stage, whether tax incentives are effective tools when it comes to driving certain types of behaviour, whether it’s possible to create a system that is simple to operate yet robust in the face of potential abuse and around fundamental issues such as fairness.
“Right now is when governments across the world are looking at how they respond to the OECD recommendations. It’s not a foregone conclusion that the UK will raise more tax as a result of BEPS so more data in the form of behavioural and economic analysis would be helpful. It’s crucial that the various stakeholders work together with policy-makers on how they respond to the changing tax landscape by engaging in open, honest dialogue about the issues at the heart of the matter. After all, tax is a fundamental part of our world. Without it modern economies could not function and we would not be able to achieve the collective goods of health and welfare, security and education which we all value.”
Notes to editors:
Margot Cowhig, KPMG Corporate Communications
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Jess Liebmann, KPMG Corporate Communications
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Since October 2014, KPMG has been supporting and sponsoring an initiative exploring Responsible Tax for the Common Good bringing together stakeholders across the tax debate. More details are on: www.responsibletax.org.uk
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