Threat to FDI as UK urged to slash its corporation tax to zero
The UK should consider scrapping corporation tax over time to massively boost the country's attractiveness to global business, a British think tank has said.
It comes as Ireland's competitiveness watchdog warned that while our 12.5pc corporate tax rate remains competitive, we're under pressure internationally.
The London-based Adam Smith Institute said corporation tax in the UK should be abolished as part of a reboot of the country's tax system in the wake of the Brexit vote.
It said the move could be phased in, with an initial cut to 12.5pc, to bring the country in line with Ireland, then further chops to 6.25pc and, ultimately, zero. Such a move would put Ireland under pressure in terms of foreign direct investment (FDI).
New UK Chancellor Philip Hammond has so far not committed to plans announced by his predecessor, George Osborne, to cut Britain's corporation tax rate to below 15pc.
The Adam Smith Institute said there is a "false belief" that corporation tax is paid by companies. "It is paid by the employees of companies, by their customers, and by their shareholders," the institute said, in a note from its president, Madsen Pirie.
"Without corporation tax, businesses would have more money to distribute to shareholders in dividends, to increase the pay of their employees, and to keep prices keen for their customers.
"Although the government would forego the amount it receives in corporation tax, it would receive more income tax from the higher dividends to shareholders and from the increased wages to employees, and more VAT from the extra spending power the lower prices put into the pockets of customers."