§ I turn now to the questions of tax reform and simplification. In the various proposals I have to lay before the Committee I have borne in mind the need for tax simplification. Schedule A, I think, is a good example. To my mind, this simplification should be a continuous process.
§ My predecessor referred to the question of amalgamating Income Tax and Profits Tax into a single corporation tax. The Inland Revenue have discussed a scheme for this purpose on a confidential basis with certain experts drawn from outside bodies. As the Committee may well be aware already, these discussions have led to the advice from industry that schemes which have been considered for the amalgamation of the two taxes are not satisfactory.
§ I accept this advice, but I am sure there are improvements that can be made in the Income Tax code for companies, and I should like to find a common basis for assessment for Income Tax and Profits Tax. The Inland Revenue is examining with the outside experts the possibilities of bringing taxation of company profits for Income Tax on to an accounts basis, as it is already for Profits Tax, which will remove many of the complications and anomalies that are inherent in the present provisions dealing with the opening and closing years of a business and give rise to so many difficulties.467
§ In the meantime, I must propose some amendments to the law in this field to prevent widespread avoidance in relation to the closing years of a trade or profession.
§ Another proposal that is very topical at the moment is the introduction of a turnover tax, or an added-value tax of a kind that is common on the Continent. Supporters of this tax argue that it provides what is called a built-in incentive for exports, Whatever case there may be on other grounds for broadening the base of indirect taxation, I have never been convinced that the substitution of an added-value tax, either for Profits Tax or for Purchase Tax, would provide, in practice, an effective incentive to exports in the sense of an opportunity or encouragement to our manufacturers to sell their goods abroad more competitively than they do at present. It would certainly not increase the return on export sales: the encouragement to export would arise only from reducing the return in the home market if the manufacturer did not pass on the tax to the consumer, which seems to me unlikely.
§ I recognise, however, that many people do believe that a tax of this character would strengthen our economy. Neither I, nor my advisers, would claim for Whitehall a monopoly of knowledge in these matters. Much would depend on how businessmen would react to such new arrangements; on this point there is room for considerable controversy.
§ I have, therefore, decided to ask Mr. Gordon Richardson, Chairman of J. Henry Schroder, Wagg and Company, who was a member of the recent Jenkins Committee on Company Law, to conduct an investigation into the practical effects of instituting in this country a turnover tax on the pattern generally known in Western Europe, either in addition to existing taxation, or in substitution either for the Purchase Tax or Profits Tax or both.
§ This investigation, in which the Inland Revenue and the Customs and Excise will fully participate, will be carried out urgently and will enable the full facts of this controversy, which I do not think are yet widely known, to be made available for public discussion and for the formulation of policy.