Income tax powers rethink included in Scottish Government’s legislative plans for year ahead

6 Oct 2017

The Scottish Government has raised the prospect of a rethink of the way the country’s devolved income tax powers are used.

Scotland’s first minister, Nicola Sturgeon, announced that her government is to consult on the proposals as she set out her government’s legislative programme for the coming year.

The review into how Scotland makes “best use” of its income tax powers is expected to:

Set out the current distribution of income tax liabilities in Scotland Analyse the implications of different options around income tax, including those of other parties represented in the Scottish Parliament Set out the importance of the interaction of income tax policy with the fiscal framework Provide international comparisons of Scotland’s income tax policy Better inform the Parliament and people in Scotland about the choices available for investing in public services and supporting the economy in the context of continued austerity and Brexit

Ms Sturgeon also confirmed that the Scottish Government would seek to explore “how responsibility for a broader range of taxes would enable the Scottish Parliament to take more balanced budget decisions, grow the economy and tackle poverty more effectively”.

No detail was given on what these specific new taxes might be.  However, in the context of Brexit and issues closer to home such as income tax divergence between Scotland and the rest of the UK, and the UK-wide problem of tax-motivated incorporations, it may not be outwith the realms of possibility to see consideration of areas such as VAT, corporation tax and dividend tax, not to mention full control over the income tax base.  These were areas that drew the attention of MSPs over the course of the last Parliamentary session and which can be expected to be returned to over the next 9 and a half months.

The discussion paper on income tax will form part of the government’s consultation process for the draft Budget Bill, one of 16 new pieces of legislation to be introduced to the Scottish Parliament during the 2017-18 parliamentary session.

Other taxation measures announced include the introduction of a Land and Buildings Transaction Tax bill to give retrospective effect to the LBTT (Additional Amount – Second Homes Main Residence Relief) (Scotland) Order passed earlier this year.

The order covers certain scenarios where spouses, civil partners or co-habitants jointly buy a home to replace a home that was owned by only one of them.

Secondary legislation to implement rates and bands of the new Air Departure Tax (which take effect from 1 April 2018) will also be taken forward this year, as will a plan for implementing the findings of the Barclay Review of Business Rates.

The Scottish Government also confirmed that it will progress a number of measures recommended by Ken Barclay and his team – including a move towards three-yearly revaluations of premises from 2022 based on the rateable value of a property one year prior – as a matter of urgency.

Scotland’s new Land Commission is to be tasked with reviewing tax and fiscal arrangements, including the potential for introducing some form of land value based tax in Scotland, as the government takes forward research into “a range of more radical options for further land reform in Scotland”.

Other proposals include the introduction of a deposit return scheme for single use plastic bottles (drawing on the success of the 5p levy on plastic carrier bags) and a commitment to work with “interested” councils on plans for a citizen’s basic income.  The Scottish Government has also set itself the goal of phasing out the need for new petrol and diesel cars by 2032.  Such a move, if successful, would come 8 years ahead of the UK Government (which retains responsibility for vehicle taxation).

Ms Sturgeon said that the proposals for the coming year represented “fresh, bold and ambitious” ideas, but conceded that they could cause some controversy.

Scottish Conservative leader Ruth Davidson pledged her party’s support for some aspects of the government’s legislative proposals, but warned against further tax divergence from the rest of the UK.

Scottish Labour’s interim leader, Alex Rowley, reiterated his party’s call for the introduction of a 50p top rate of tax and called for a halt to plans to reduce Air Departure Tax while Scottish Green leader Patrick Harvie welcomed plans for a deposit return scheme and further studies into the feasibility of a citizen’s basic income.

Tax bills to be introduced to the Scottish Parliament in 2017-18

Budget Bill – Setting out the Scottish Government’s overall tax and spending plans for 2018/19.  A discussion paper on future use of Scotland’s income tax powers will be consulted on in advance.

Land and Buildings Transaction Tax Bill – to retrospectively apply changes to the LBTT second homes residence relief for spouses, civil partners and cohabitants.

Other measures relating to the devolved taxes outlined above are not included in primary legislation and will be taken forward through other means such as secondary legislation.