Fit for Consumption? Examining the case for devolution of VAT & sales taxes
REFORM SCOTLAND CALLS ON NEW FIRST MINISTER TO SET OUT PROPOSALS ON TAX DEVOLUTION
- Former senior civil servant authors new paper on Holyrood taking control of VAT
- Argues other taxes should also be considered to encourage responsibility and resilience and reap financial benefits
Reform Scotland, the non-partisan think tank, is calling for a better mix of devolved tax powers so the Scottish Government can directly raise more of the money it spends.
Heather McCauley, who has advised two New Zealand prime ministers and is a former senior civil servant in the Scottish Government, has authored a new paper, “Fit For Consumption? Examining the case for devolution of VAT and sales taxes”, in which she explores the costs and benefits of devolving VAT, a step the Scottish Government is calling for as part of the Fiscal Framework Review currently underway. This follows her previous report for Reform Scotland, Taxing Times, which assessed the potential of a number of other taxes for the Scottish Government.
The Scotland Act 2016 made provision for assignation of 50% of VAT revenues to Scotland, but seven years on this has yet to be implemented and the debate around VAT has stalled. McCauley’s paper seeks to reignite that debate by drawing insights from similar schemes around the world.
The paper suggests that there are three main reasons to devolve taxes – to increase the extent to which the Scottish Government funds its own spending, to enable the Scottish Government to benefit directly from any improvement in Scotland’s economic performance, and to improve the Scottish Government’s financial resilience. It concludes that Scotland should think much more deeply about whether VAT is the right type of taxation to ensure that those boxes are ticked.
The paper identifies risks such as tax flight, administrative costs and the impact on Scotland’s tax mix, and concludes that devolving or creating taxes on wealth are likely to be a more sensible method of ensuring a broad basket of taxes under the control of the Scottish Government.