Tax system in Great Britain and its role in fiscal policy
The value of fiscal policy of the state. Determination of directions of use of state financial resources, methods of financing and the main sources of replenishment of the treasury. Creating a fair and efficient tax system, ensuring its stability.
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TAX SYSTEM IN GREAT BRITAIN AND ITS ROLE IN FISCAL POLICY
НАЛОГОВАЯ СИСТЕМА ВЕЛИКОБРИТАНИИ И ЕЕ РОЛЬ В ФИСКАЛЬНОЙ ПОЛИТИКЕ
Financial University under
the Government of the RF
Nowadays without an exception, all countries develop their own economic policies in order to respond to permanent changes of the modern economic patterns. Fiscal policy is an extremely important question for any state because it determines the directions of using of state's financial resources, methods of financing and the main sources of replenishment of the treasury. Fiscal policy is a powerful tool of driving economy the right way of development and growth.
In modern Russia taxes are the cause of severe contradictions and argues between the state and society. Building of a fair and efficient tax system, ensuring its clarity, predictability and stability is an important condition for improving the business and investment activity, the progress of the Russian Federation towards the establishment of market economy and the successful integration of the Russian economy into the world.
Therefore, the experience of developed countries in resolving tax problems and in the formation and conduct of a balanced fiscal policies is particularly important in the Russian Federation during the transition to a market economy. The United Kingdom is one of the most economically developed country in the Western Europe. Britain is considered to be the birthplace of taxation. It took almost 2 centuries to create an efficient tax regime, so the experience of this country is extremely valuable for Russia.
The UK has a well-developed tax system. Time has proven its resilience and vitality. Various kinds of taxes give public authorities an opportunity to control every taxpayer and, consequently, the production, circulation, distribution and consumption. UK legislation provides for favorable taxation of investments. This experience is important for Russia in the field of attracting foreign investment to raise production, improve the quality of life of the population.
To start with, it is necessary to define what taxes are exactly. Following HM Revenue & Customs URL: www.gov.uk a tax is individual grant payments from organizations and individuals in the form of alienation belonging to them by right of ownership, economic management or operational management of funds for the purpose of financial support of the state and (or) municipalities. Respectively, taxpayers are organizations and individuals, which, in accordance with the Code are obliged to pay taxes fees.
In the United Kingdom, where the government tries to follow all these principles fairly and precisely, taxes are considered the main source of revenues for the British budget. According to the ukpublicrevenue.co.uk, in 2014 the different types of taxes covered more than 70% of the budget revenue URL:www.ukpublicrevenue.co.uk .
That is why it is important to find out the basis of British tax regime and understand some. Nowadays the UK runs budget deficit equals to 5.7 billion of pounds URL: www.tradingeconomics.com: Eurostat . That is why modern fiscal policy of Britain aims at reducing this deficit by applying a so-called “fiscal consolidation”. As it can be noticed from the UK Government Budget dynamic, the pick of deficit was recorded in 2009 so in 2010 the Government announced a new fiscal plan that supposed to reduce structural deficit by the end of 2016 (picture 2).
Picture 2. UK Government Budget
The main outlines of the current fiscal policy of the UK Conrad Smewing, UK Fiscal Strategy, Presentation to OECD Senior Budget Officials, HM Treasury, 2010 :
• Reform of financial sector regulation to help prevent build-up of systemic risks
• Structural reform to support economic o Government published a micro-economic “Plan for Growth” alongside Budget 2011 to complement macroeconomic stability
• Significant fiscal framework reform to rebuild credibility.
• Creating the Office for Budget Responsibility, to provide independent, transparent and credible forecasts.
• Introducing a clear, forward-looking fiscal mandate, to guide decisions over medium term.
• Changes in tax patterns and policies
The last point of modern British fiscal policy is of a great concern of the Government because according to the statistics, tax revenue constitutes a considerable part of budget income. For instance, in 2014 total revenue was equal to 636 (Ј billion), revenue from taxes - 518 (Ј billion) which is equal to 81% of the total revenue Office for Budget Responsibility, Economic and fiscal outlook, July 2015 (picture 3).
Picture 3.Government receipts 2014-2015
tax system fiscal policy
To boost the economy, Great Britain implemented 3 fiscal strategies connected with taxes.
1. Changes in income tax patterns, more precisely - rising free tax allowance.
Allowance means the part of income that is not burdened by a tax.
Since 2010 the income tax allowance increased almost 5 times from Ј2440 to Ј10600 in 2015. Rates over the period remains the same. They are represented in the table below.
Income tax rates, 201
Less than 10600
More than 150000
Here the following question arises: whether can such actions really help to increase budget revenues? If yes, why are they effective?
According to the latest Bloomberg research URL: www.bloomberg.com , it is obvious that since 2010 income tax revenues have increased by almost 20 billion of pounds (picture 5).
Picture 5. Income Tax Receipts 2000-2015
There are 2 main reasons of such growth:
• Reducing direct tax incentive work - people will increase hours to boost their post-tax earnings.
• Keeping more income reduces the incentive to evade taxes - more declaration of tax revenue will be made so tax revenue will growth.
2. Increasing VAT
As an important part of 2010 fiscal consolidation plan the British Government increased the main rate of VAT from 17.5 to 20%. In addition, there were made some changes to the lists of products corresponding to the different VAT rates HMRC TAX & NIC RECEIPTS, KAI Data Policy and Coordination, October 2015 . Therefore, more food was moved to the zero rated category while more specific and expensive products were added to the standard rated one.
Picture 6. Value Added Tax receipts, 1980-2015
As a result, the revenue from such changes incrteased significantly and added up to the recovery of the British economy.
3. Future dicrease of corporate tax
It is well known that nowadays England is the country with a very favourable conditions especially for foreigners to start up a business or open a new department of an existing company here. Why? Because British regime of business taxation it one of the smoothiest in the whole world. Therearesomeadvantagesrepresentedbelow:
• Respectable jurisdiction
• A favourable tax regime (low-tax scheme foe some types of organisations)
• The opportunity of using the agreement on avoidance of double taxation concluded by the United Kingdom with other countries of the world * Stable exchange rate of the British currency
• The loyalty of the tax and fiscal authorities.
There is even an opportunity to set up a non-taxabale business. From the point of view of international tax optimization UK is interesting because of opportunities of registering a Limited Liability Partnership (LLP). This organizational form is not a separate subject of taxation, subject to tax themselves are partners in proportion to their ownership interests. Thus, if partners of LLP are non-residents of the United Kingdom, and their income is derived from sources outside, the LLP is not a subject of taxation at all.
Picture 7. Corporate tax rates
Even now the UK has one of the lowest corporate tax rates in the world. But recently, George Osborne, Chancellor of the Exchequer, said that Britain's corporation tax rate will fall to 19% in 2017 and 18% by 2020. “We're giving businesses the lower taxes they can count on, to grow with confidence, invest with confidence and create jobs with confidence. A new 18% rate of corporation tax - sending out loud and clear the message around the world: Britain is open for business. As well as sending out an important message to UK business owners, the reduction in corporation tax will give them a strong competitive edge and the all-important breathing space to grow.” Rupert Denholm-Hall, Budget 2015 - Corporation tax to fall to 18% by 2020 as
Chancellor says Britain is open for business, URL: www.walesonline.co.uk, 2015
Taxation in the United Kingdom has now reached its peak. In the past, taxes were higher and more numerous. Currently, the amounts of tax along with its rates are reduced. Improvement of the British tax system is determined by such objective factors as the need for state intervention in the process of forming the relations of production and socioeconomic boundaries taxation. The contradiction between the need for tax revenues and opportunities for their obtaining is the formation of the basic tax system. There is a constant search for ways to reduce public expenditure and, consequently, reduce the need for tax revenues, on the one hand, and increasing the efficiency of the existing system - on the other. Currently, the state taxation system is undergoing important changes caused by problems typical of all developed countries.
Nowadays it is obvious that taxation is an essential and important tool of the modern fiscal policy. What is more, according to the experience of the British Government, a wise and timely usage of taxes can have a good influence on the budget balance and the pace of economy's growth.
In general, there is a lot of valuable and useful things in the British experience of creation and functioning of an efficient tax system. However, when deciding on the transfer of some aspects of the UK tax practice in Russia, it is necessary to take into account the objective conditions under which the tax system will be developed and the specific state of the economy, the level of accumulated wealth, attitudes and traditions of the population. The British economic system is characterized by more stable prices and stable level of employment, while in our country such components of the tax system will work quite differently. The structure of the British state has a complex legal system and the accounting rules that are very different from the traditions of the countries with economies in transition. Therefore, the decision on the adoption of the UK tax system, in practice, will inevitably come up against insurmountable difficulties of implementation. One can not discount the specific conditions of the national economy and labor traditions of the population, as well as many other factors.
All in all, the British experience in the field of implementation of taxes is a valuable thing for the Russian fiscal policy. That is why, it is important to sort out the British tax regime to adopt some suitable for our country aspects successfully.
List of literature
1. Boboev, M.R. Tax systems of the countries of the Eurasian Economic Community / M.R. Boboev, N.T. Mambetaliev // Financies. - 2001. - N 7
2. Popova, L.V. Tax system of foreign countries / L.V. Popova // M.: Business and service, 2008. - 1762
3. Chris Rhodes, Business statistics, BRIEFING PAPER Number 06152, October 2015
4. Conrad Smewing, UK Fiscal Strategy, Presentation to OECD Senior Budget Officials, HM Treasury, 2010
5. Gemma Tetlow, Cutting the deficit: three years down, five to go?, IFS, 2013
6. HMRC TAX & NIC RECEIPTS, KAI Data Policy and Coordination, October 2015
7. Office for Budget Responsibility, Economic and fiscal outlook, July 2015
8. Rupert Denholm-Hall, Budget 2015 - Corporation tax to fall to 18% by 2020 as
9. Chancellor says Britain is open for business, URL: www.walesonline.co.uk, 2015 Taxes in Great Britain / URL: http://www.uk.ru/economics/taxes.html Web-sites:
10. URL: http://www.fco.gov.uk
11. URL: http://www.nalogi.net
12. URL: www.gov.uk
14. URL: www.tradingeconomics.com: Eurostat
15. URL: www.bloomberg.com
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