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Monday, December 18, 2006

Avoidance vs Evasion

Gordon Brown and the Labour government are allowing their natural prejudice against those that earn above the norm to override one of the fundamental principles of taxation. Namely that tax evasion is illegal, but tax avoidance is perfectly acceptable.

Simply put, tax evasion is where an individual or company does not declare/willfully understates income with the express intention of defrauding the tax collector. Tax avoidance is where an individual or company legitimately uses the tax rules to reduce their tax burden, eg by making the most of their personal allowances.

The tax lobby group, the Tax Justice Network, has noted that 41% of all new tax legislation is targeted at blocking tax avoidance. The group has issued a report that looks at the purpose for enacting every section and schedule of all 1503 pages of tax legislation in the Finance Acts, passed in the period 2004 to 2006.

It notes that only 48 pages deal with routine issues such as tax rates, 841 were the result of government-driven initiatives and 614 were anti-avoidance measures.

An absurd waste to time and resources, which of course spawns an entire industry tasked with outhinking the tax collector.

Unfortunately the Tax Justice Network misses the point of their research, and lays the blame on the hapless taxpayers,

Richard Lupson-Darnell, who conducted the research, said:

"The tax avoidance industry and tax advisers in general are constantly complaining about the volume of legislation they have to contend with. However, this research shows that they and their clients have to take a lot of the responsibility themselves."

Mr Lupson-Darbnell is wrong, all Chancellor Brown has to do the clamp down on this industry (and the resources wasted by "aggressive avoidance") is to simplify the tax system and to publicly state and accept that tax avoidance is perfectly legitimate.

The trouble is that Brown and the Labour party are saddled with ideological baggage that makes this all but impossible.

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