The British government intends to lower its corporate tax rate to 17% over the next three years, yet many businesses express satisfaction with the existing 19% rate.
It is clear that business leaders are aiming to lessen their overall tax liabilities.
However, they are requesting U.K. Treasury chief Philip Hammond to reconsider how this objective can be best met when he reveals his budget on Wednesday.
The British Chamber of Commerce (BCC) has urged the government to retain the current 19% rate while instead reducing property taxes and other fixed fees imposed on businesses.
“To foster a competitive business landscape, the emphasis should be on alleviating upfront business expenses and taxes,” stated Suren Thiru, the BCC’s head of economics and business finance.
This approach would aid startups and companies struggling to generate profit more than merely reducing their income tax.
Consulting firms EY and Deloitte share this viewpoint.
According to Bill Dodwell, head of U.K. tax policy at Deloitte, there is “widespread consensus” among the business sector that targeted relief would be more advantageous than a reduced corporate tax rate.
The discussions around U.K. policies highlight a larger conversation in developed economies regarding the benefits of lowering the primary corporate tax rates.
The average corporate tax rate in more than 30 countries monitored by the OECD has dropped by 7.5 percentage points since 2000, now sitting below 25%. In Ireland, the rate is currently as low as 12.5%.
Nonetheless, the complexities lie in the specifics.
For instance, in the United States, Republicans are advocating for a decrease in the corporate rate from 35% to 20%. President Trump emphasizes that this new rate should be “no higher” than that.
Proponents argue that 35% represents one of the highest nominal rates globally, yet many companies pay significantly less when taking deductions and special tax incentives into account.
From 2008 to 2012, large, profitable U.S. corporations reported an average effective federal tax rate of 14%, according to the U.S. Government Accountability Office.
Critics assert that the Republican proposal falls short in eliminating the deductions and tax credits that businesses have benefited from for years.
“This is not tax reform. This is a tax cut. This is fool’s gold,” stated Starbucks executive chairman Howard Schultz earlier this month.
In Britain, there have been demands for substantial cuts to the corporate tax rate post-Brexit to prevent businesses from relocating abroad. Detractors argue that such actions would only propel a downward spiral in tax rates.
