The Scottish Government is expected to press ahead with plans to introduce a business rates levy for online businesses, the focus of debate at this year's CIOT fringe event at SNP conference in Glasgow.
This year, CIOT parntered with CBI Scotland for the event, Taxing Scottish Businesses in a Digital World. The event - standing room only - was chaired by Michael Blackley, the political editor of the Scottish Daily Mail.
While the levers of business taxation are largely reserved to the UK Parliament, the Scottish Government’s power to levy Business Rates represents the single biggest wholly devolved tax in Scotland. In 2017/18, the tax generated £2.77 billion for the Scottish budget.
Ken Barclay – the former chairman of The Royal Bank of Scotland – was tasked with reviewing the Business Rates regime, with his eponymous review of the system published last year.
Barclay and his team considered the rise of the digital economy as part of its review but concluded that this lay outwith their remit.
It did recommend however that councils be given the power to introduce “modest rate supplements” on online retailers such as distribution centres. This would become a focus for the evening’s discussion.
Kate Forbes MSP, Scotland’s Minister for Public Finance, told delegates at the CIOT/CBI event that she had the “best job in government” with her responsibilities for taxation and the digital economy. In opening remarks, she said that Scotland was a leader in technological innovation.
She lamented the “limited” powers that Holyrood had over business taxation but said she was intent on using these levers to deliver a fair regime that supported economic growth and boosted competitiveness. This included consideration of the government's plans to increase the rates of out of town and online distribution centres.
She argued for the closure of loopholes in the tax system to prevent abuse of the system, noting the presence of the Scottish General Anti-Avoidance Rule (GAAR) as one tool in the government’s armoury.
Speaking for the CIOT, Ray McCann argued that the taxation of digital businesses required a multilateral approach, noting that the UK – or Scotland for that matter – risked retaliation if it chose to go it alone.
There were questions too, he argued, over what the global response would look like. He said, “the real issue would come from what we would tax. It could range from half a per cent on their transaction value if you like, but you still wouldn’t get a situation where you easily identify an amount levied on the taxable profit of that business.”
The old international order of business taxation – constructed over 80 years ago - was based on physical infrastructure. A lot of kudos was out there for whoever found the solution to the issue of digital taxation, he argued, but it had yet to be found.
The digital economy was vital to the prosperity of Scottish businesses, argued Mari Tunby of CBI Scotland. She pointed towards research showing that Scotland could increase its GDP by 13 per cent if it became a digital world leader. She agreed on the need for an international approach, but not at the risk of damaging Scotland’s attractiveness as a place to do business.
Kate Forbes would also point towards the value of the digital economy for rural economies such as those she represents as the Member of the Scottish Parliament for Skye, Lochaber and Badenoch. It enabled them to look further afield to markets elsewhere in Scotland, the rest of the UK and beyond. But referring to remarks made at earlier events at conference, the challenges of ensuring adequate connectivity remained a challenge.
The opening remarks from the speakers prompted a wide and varied question and answer session from the standing-room only audience.
Were other countries just as concerned as Scotland about the rise of the digital economy? Ray McCann pointed towards the international efforts, led by the EU, to tackle digital taxation, but noted too that the same impacts as seen in the UK, such as the decline of the high street, were less prevalent in other parts of Europe.
On wider concerns around tax evasion and avoidance, Kate Forbes noted that Revenue Scotland has taken strong line on compliance since it was established in 2015, with Land and Buildings Transaction Tax (LBTT) a strong focus of its attention.
Ray McCann did not doubt that there were companies out there that were taking advantage of the tax system for their own benefit, but he argued that the extent to which this is taking place had been exaggerated, prompting a vigorous discussion within the room.
A delegate remarked that the Scottish Government's business rates bonus for small businesses had been key to their business growth but he was critical of the bureaucracy of the VAT system, which represented a considerable burden. Could Brexit provide an opportunity to rethink and reform VAT or to replace it with a simple sales tax?
As Ray McCann pointed out, VAT represented a 'huge' revenue raiser for government and to redcue or abolish it would require savings to be made elsewhere. It was a political choice that may be unpalatable.