The UK intends to reduce its corporate tax rate to 17% within the next three years, yet many companies are satisfied with the current 19% rate.
There is no doubt: Business leaders are looking to lessen their overall tax liability.
However, they are urging U.K. Treasury chief Philip Hammond to reconsider how to achieve this when he unveils his budget on Wednesday.
The British Chamber of Commerce (BCC) has suggested that the government maintain the existing 19% rate, focusing instead on lowering property taxes and other fixed payments required from businesses.
Suren Thiru, head of economics and business finance at the BCC, stated, “In striving to foster a competitive business atmosphere, attention should be directed towards alleviating upfront business costs and taxes.”
This approach would more effectively assist startups and struggling businesses than a reduction in income tax.
Consulting firms EY and Deloitte share this perspective.
Bill Dodwell, the head of U.K. tax policy at Deloitte, mentioned that there is “wide consensus” among the business community that targeted relief would be more advantageous than a decreased corporate tax rate.
Discussions regarding U.K. policy echo a larger conversation among developed nations about the merits of lower corporate tax rates.
According to the OECD, the average corporate tax rate across over 30 monitored countries has fallen by 7.5 percentage points since 2000, now lying below 25%. In Ireland, it currently stands at just 12.5%.
However, the nuances often matter significantly.
In the United States, for instance, Republicans are advocating to lower the corporate rate from 35% to 20%. President Trump has stated that the new rate should not exceed that amount.
Proponents argue that a 35% rate is among the highest globally, but many businesses end up paying considerably less after accounting for deductions and specific tax incentives.
Related: How would the U.S. middle class fare under the Senate tax bill?
Between 2008 and 2012, large, profitable U.S. corporations reported an average effective federal tax rate of 14%, as per the U.S. Government Accountability Office.
Critics contend that the Republican proposal does not sufficiently eliminate the deductions and tax credits that businesses have received over the years.
This is not tax reform. This is a tax cut. This is fool’s gold,” stated Howard Schultz, executive chairman of Starbucks (SBUX), earlier this month.
In Britain, there are urgent calls for significant cuts to the corporate tax rate post-Brexit to prevent businesses from relocating overseas. Critics argue that this would merely lead to an accelerating race to the bottom.
