Margaret Hodge MP may be guilty of tax dodging in the court of public opinion, but I have applied my tax expertise to her situation and come to some to conclusions that many of you might find a bit surprising.
Normally, I would say that it is more than acceptable to look at the turnover of a business and expect for the UK to receive a fair share of that turnover. However, in the case of Stemcor I believe that perhaps we ought to be looking at the commercial reasons why the UK head-quartered company should yield profits in overseas territories, but not here.
Now, it’s important to note that Margaret Hodge has a small shareholding and has no connection with those who operate the business on a day to day basis. Her brother appears to have an administrative role in the post department, but apart from that he probably couldn’t be expected to be aware of the financials of the company.
He certainly would have no control over structure of the business or financials.
Furthermore, why would Hodge apply the same forensic tax analysis skills she applies to listed companies which anybody can own, to a privately owned company from which few individuals benefit?
No, there is no reason why she should know what’s going on there or to think that she should have checked the accounts to compare them against the standards by which she has being measuring other companies.
Besides, Margaret Hodge is an MP, and a Labour one at that. As such, I would categorise her as a Courageous Politician. I don’t think she could possibly have a tax avoidance motive, so my GRAPIST anti-avoidance bill would probably not catch her company’s behaviour.
Also, I think we need to distinguish between the steel industry and the coffee industry.
In the steel industry, perception is everything and most of a company’s value derives from its brand value and marketing. It is a supply-heavy market where there are several big names, as well as small independent steel boutiques, all vying for small margins. Steel is heavily reliant on its outlets on highstreets where rents, particularly in prime locations, are excessive.
Also, Stemcor, being a UK based company, will probably derive most of its intellectual property from overseas, where the brand was developed.
The coffee industry, on the other hand, is a very certain trade where almost any idiot could open a shop and make profit margins in excess of 50%. There is significant demand for the exotic commodity of coffee, which is unavailable in people’s own kitchens and there are hardly any vendors. It doesn’t matter who is selling it, or at what price, coffee merchants practically have a license to print money.
Coffee is also mass ordered by its customers in advance, so it is a lot easier to forecast profits, and move those profits around subsidiaries in low tax jurisdictions. With very little requirement for retail outlets and completely independent of the disposable income of the woman-on-the-street, the coffee shop industry is an incredibly easy business to succeed in.
And ultimately, Stemcor has done nothing illegal. It has stayed within the letter and spirit of the law, which suggests to me that it is behaving in a moral fashion. Murder and rape are illegal, so you can see that the law is pretty much the same thing as morality.
So, tomorrow afternoon, I expect to hear Margeret explaining to Strarbucks and Google and Facebook that although they have done nothing “illegal” the situation is completely unacceptable and they should be hauled over the coals for behaving in such a fashion. It’s clearly immoral what they’re doing. You would expect to see companies paying tax where they make their sales, not where the company is based.
So Hodge’s critics are wrong. And we should be prepared to listen to her when she makes radical suggestions like this one of some sort of tax linked to the point of sale:
“That should be explored – anything that gives you a model of taxation which enables you to fairly tax economic activity in the UK.”
Some sort of tax, perhaps agreed by the EU, where tax is levied at the point of sale, rather than on “profits” should be considered. Maybe we should give exemptions for certain things, and lower rates for essential goods and services. For example, gas or electricity could have a lower rate.
Maybe we should allow the sales tax paid by a business to be offset against that levied on its sales, so that business isn’t hit for cashflow too significantly.
There will need to be some sort of monthly, or perhaps quarterly, reporting system. And maybe we should have a certain level of turnover where businesses don’t need to administer it. They won’t be able to reclaim the sales tax, but they won’t need to charge it.
Also, perhaps we could have some sort of sales tax registration system to help cut down on international fraud. People could then check that tax has been paid by asking for a sales tax “receipt” of some description.
The counter argument, that the tax is ultimately levied on the customer is nonsense. It’s is levied on the vendor as it is basically a cost of sale. Almost everybody will ask for a sales receipt and account for the sales tax separately in every single transaction. People are like that, they like to look at the component costs of things.
Of course, once corporation tax has been adjusted to levy a tax on sales, we will need to introduce some sort of corporate income tax, to tax companies where they are based. This will ensure that they are taxed in a similar basis to individuals.
The worry is that people will become ignorant of how corporate income tax is supposed to work and focus on the point of sale. We will need to ensure that people are educated properly about tax so that they can appreciate that the corporate income tax is not the same thing as corporation tax which will be a tax on the sale of goods or services at the point they are delivered.
Because of ideas like this, we can see that Margaret Hodge MP has a keen understanding of the tax system. That’s why she opposed the stupid increase in VAT by boycotting the Finance Bill readings and is against a reduction in corporation tax because at some point it will tax companies on the basis that people think it ought to and we really ought to keep a high rate of tax on it for that day.
If we want to tax people where sales occur, we need to overhaul the corporation tax system, like Hodge seems to be thinking.
It’s for that reason that I have decided that she could not possibly be benefiting from any sort of tax planning, let alone tax avoidance.
I look forward to seeing Margaret Dodge MP interrogating those evil foreign racist tax hodgers tomorrow.