Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
Page 11
Page 12
Page 13
Page 14
Page 15
Page 16
Page 17
Page 18
UKFEATURE50PTAXRATEAPENALTYTheIndiandiasporaincludingnon-residentIndianswhoformanimportantandincreasinglyafuentsegmentoftheglobalnancialcapitalhaveviewedtherecentcutintheUKx19stoptaxratefavourably.Thetoptaxrateof50pwillbecutto45pfromAprilnextyearongrossincomeaboveGBP150000peryear.GeorgeOsborneUKChancellorhaslistenedtothecacophonyofoutrageexpressedsincetheintroductionoftheadditionalratebytheLabourgovernmentinApril2010.The50percentratethehighestintheG8relegatedtheUKtothebottomoftheinternationalcompetitivenessleagueforhighearnersandreduceditsabilitytorebuildenterpriseandrestorethebeleagueredeconomy.ThetopratewasalsoconsideredstiingpunitiveandunjustnotleastbyanumberofIndianprofessionalswhosoughtjobsoutsidetheUKparticularlyinAsia-Pacicwheretaxratesareconsiderablylower.ThehighrateinducedsomeoutwardmigrationbythemosthighlypaidandmobileworkforcedeterredhighearnersfromcomingtotheUKandthemovementofincometocapitalgrowth.Thepunitivehighratealsopromptedbehaviouralchangesamonghighearnersalargenumberofwhomwerenon-residentIndians.The50pratefailedallthetestsforeffectiveincometaxationandonlyservedtoexacerbatethedamagealreadydonetotheBritisheconomy.TheLabourChancellorhadpaintedtheillusionthatthegovernmentx19sproigacywillbepaidforonlybythemostafuentandrichestmembersofsociety.Therateraisedonlyafractionoftheanticipatedrevenuebybringinginonlyhundredsofmillions.TheremovalofthistopratewillassistinmakingtheBritisheconomycompetitiveagain.Thelongtermdamagefortheeconomyhasbeensignicantwhiletheprophecyofthenaysayersamongtheeconomistsandcommentatorswhohaddebatedanddoubtedtherevenuegeneratingcapabilityofthehigh50pratehascometrue.Thecutalsoreectsacommitmenttoanenterpriseeconomywhichshouldgiveamuchneededlliptoattractforeigninvestmentandgenerategrowth.Whilstthe45ptopratewillstillbeamongstthehighestintheG20itwillassistinincreasingthecompetitivenessoftheUK.ThereductioninthetoprateoftaxhasalsodrawnawelcomecheernotleastfromindividualsrelocatingtotheUKandtheiremployerswhohavebeenstrugglingwiththehighcostofequalisationpackagesandfacingdifcultyinattractingoverseastalent.Thelowerratewillmeanreducedcostsfortheserms.ThesediretimesareindeedanopportunityfortheUKtoensureitspre-eminenceontheworldstageisretainedandthatitremainsanattractivedestinationofchoice.Theadditionaltaxratemaybereducedfurtherinduecourseastheeconomyreelsitselfoutofthecurrentstateoflacklustergrowthandstrongersustainedgrowthisrestored.50PTAXRATEAPANACEAItisimperativetolookatwhythe50ptaxratewasimposedintherstplacebyLabour.ItwasestimatedbythethenChancellorAlastairDarlingthattheadditionaltaxwouldraiseGBP2.4billionforthegovernmentandthatthosewiththebroadestshouldersshouldcarrythegreatestburden.Healsobelievedthatatthathighendincomeshadgoneupquitedramaticallyoverthelast10to15yearsandthatitisreasonableforthoseattheverytoptomakeanadditionalcontribution.Therecentreductionofthetopratehasraisedsomefaircriticismfromdifferentquarters.Manyfeelthatthepriorityofthegovernmentiswrongbymakinganincometaxcutfortherichest1percentparticularlyatatimewhenthesqueezedmiddlearefacingdifculty.Thefocusofthegovernmentshouldbetogetthemuchneededjobsandgrowthmovinginthecountry.Thebudgetitselfhasbeenbrandedasoneforandinfavourofthemillionaires.TheConservativesareaccusedofcomingveryclosetocreatingtheirutopiaacountryinwhichbusinessruleswheretherichgetricherandthestateisbeingusedasamechanismforcashowwithnosocialresponsibility.Thoseearninginthetopbrackethavemoredisposableincomethanthoseinotherbandsandthushavetheabilitytocontributealittlemorethanothers.Thislevelingoftheburdenassistsincreatingamoreequalsocietyvaluespeopleequallybringsadditionalsocialbenetsandlowersthecosttothestate.Thereisthereforeastrongcaseforprogressivetaxationwheretherichestinsocietypayahigherproportionoftheirincomesintaxthanthosewhoareworstoff.Manyfavourretainingthetopincometaxrateat50pforthesereasons.Thereisanargumentthatpeoplewillnotsimplyavoidratesinsteadtheywillleavethecountryorceasecreatingasmuchwealth.ThereisnoevidenceoflargescalemigrationfromtheUKasaresultofhighertaxrates.Manydiscusssuchintentionsbutfewappeartofollowthroughgiventhestressofmovingtheirentirefamiliesoverseas.Similarlytheargumentthatahighertopratewillreducejobandwealthcreationisnotvalid.Mostofthe1percentpayingthetoptaxrateworkinnanceorareseniorcorporateexecutives.ItisfallacytosuggestthatthosewhoinvestinjobsandgrowthintheUKareguidedanddrivenonthebasisthatasmallnumberoftheiremployeeswillhavetopayahigh50ptaxrateonearningsaboveGBP150000.Youngerandmoreglobalthantheirforebearstodayx19sgenerationofwealthcreatorshavesophisticatedchoicesfortaxmanagementbecauseofdigitalbankingwillingnessofemployerstobesympatheticandexiblewithremunerationarrangementsnancialderegulationandacreativewealthmanagementindustry.Inthisageofnancialliberalisationhighincomeindividualscantapintonewideasofreducingtheirtaxburden.Incometaxsomewouldsayhasbecomeavoluntarytaxwhereindividualscanopt-outbyutilisingnancialproducts.nTarunGhulati-PresidentandChiefExecutiveOfcerIndusGlobalLtdCommitteeMemberLondonChamberx19sAsianBusinessAssociationBoardMemberTheIndusEntrepreneursTiETHEGREATDEBATE