I have been thinking about Margaret Hodge’s endorsement of corporation tax being calculated on the basis of the point of sale.
Having read my post for the fourteenth time (it is rather good, even if I do say so myself), I started to recognise an underlying similarity between the effects and mechanisms of her proposal and an obscure tax that is already in existence.
“Value Added Tax”, or VAT for short, is actually already levied on sales in a very similar manner to how Margaret Hodge suggested. As such companies would probably just pass the costs on to their customers.
Instead, I think we should perhaps look at the approach suggested by Professor Henry Jones Jr of the Justice For Taxes Network, when he suggests that we should tax profits on the basis of where the work to produce them occurs.
I think this is an excellent idea. Instead of taxing profits based on where the assets of the business are located, we should look at taxing its real asset: the intellectual property that resides in the very heads of its employees.
Of course, employees vary in their worth, (imagine getting away with paying the same amount on me as you would on a nanny!) so we would have to weight the amount levied on each employee according to their worth. Failing to do this would mean that companies situated in low tax jurisdictions would start to take on more employees and lay off those in high tax jurisdictions.
We’d be encouraging the race to the bottom, so we need to attach the tax to the most valuable employees.
The only fair way to calculate this is to try and ascertain some sort of market value that a third party might pay for their services.
Thinking that, I just realised that salary would be a perfect measure.
Yes, we would have to provide some sort of lower threshold under which the employer didn’t need to pay, so as not to discourage employing unskilled plebs. An amount that is similar to the income tax personal allowance would be good, though perhaps a bit of variation would creep in as politicians played with the slight complexity.
But, above that threshold the employer could pay some sort of “employers contribution” which represents a levy on their use of labour to create profits.
As the higher paid get paid more, so they are taxed more.
This might encourage some clever sociopathic accountants to contrive ways of giving assets to its employees, or maybe even just lending them stuff, like a car, so we’d value those and apply the employers contribution to a fair amount.
Some sort of annual declaration of the value of stuff provided to them would be needed I imagine. But that’d be easy for businesses to do and hardly be time consuming.
This would work a treat, I believe. I just need to think of a good name for this fair international tax.
I want to call it the Fair Universal Charge, but I am open to suggestions below.