DISCUSIÓN

36.5.1 TAX DESIGN

In reality saying that all consumers pay the same amount of consumption tax and therefore have equal disincentives to pay for a particular product or service is not always true.

Businesses can frequently claim back consumption expenses which are tax-deductible.³⁰ For example in the EU, VAT expenditure can frequently be claimed back for VAT-registered businesses. A taxable person pays VAT upon a purchase but regards it as an ‘input tax’.

This can be offset against ‘output tax’, the VAT that the taxable person charges its customers.³¹

28 McDaniel PR, ‘Taxing Consumption Only: Indentifying the Issues’ (1995) 47 The Tax Executive 6, 442-4.

Therefore the businessperson bears only the initial charge, not the burden. This reduces any financial incentive to limit environmentally damaging consumption behaviour and passes the burden of environmental taxation onto private individuals – making the

‘ultimate consumer’ who is not a taxable person bear the burden. Therefore consumption

29 Ibid at 444.

30 Comparison of consumption taxes in terms of broadening a tax system are analysed in Schenk A and Oldman O, Value Added Tax: A Comparative Approach (New York, CUP, 2007) at 2; 13.

31 See HMRC, ‘The VAT Guide’ (2002) Notice 700

<http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=p ageVAT_ShowContent&propertyType=document&columns=1&id=HMCE_CL_001596#P865_71819>

Accessed 10/5/2010.

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taxes must be implemented with consideration to the wider tax framework to prevent this distributive inequity.

Prior to 2002, UK businesses had a tax incentive to do extra business miles in their company cars.³² Drivers reaching a higher threshold of business miles could claim a larger tax discount, which was estimated to cause up to 300 million extra business miles being driven annually.³³ This was abolished in 2002 when the charge became linked with the car’s CO₂ emissions and there became no incentive to do more business miles.³⁴ For company cars doing business miles, the statutory rate from 2002/3 onwards allows GBP £0.40 for the first 10,000 business miles and thereafter a lower rate of GBP £0.25.³⁵ Such measures have been deemed a success as they have led to both a significant reduction in emissions and lower tax revenues, demonstrating that the tax system has been effective in incentivising lower

mileages of company cars.³⁶ This reduces the extent to which businesses are exempt from bearing the tax burden, whilst protecting competitiveness by allowing a ‘necessary’ degree of travel.

Fullerton et al note that various EU Member States have lower rates of tax for diesel than petrol. The suggestion is that this may be designed as a partial exemption for business taxpayers since diesel engines are commonly used in commercial vehicles.³⁷

32 HM Treasury, ‘Protecting the Environment: Reform of Company Car Taxation’ (2000) <http://www.hm-treasury.gov.uk/bud_bud00_pressrev6.htm> Accessed 10/5/2010.

Though the

33 Ibid.

34 <http://archive.treasury.gov.uk/financebill/1999/c44.html> Accessed 10/5/2010.

35 See HMRC guidance at <http://www.hmrc.gov.uk/manuals/eimanual/EIM31240.htm> Accessed 10/5/2010.

36 HMRC’s 2006 report suggested the environmental impact was equivalent to 0.5% of CO₂ emissions from all road transport; see HMRC, ‘Report on the Evaluation of the Company Car Tax Reform: Stage 2’ (2006)

Appendix II <http://www.hmrc.gov.uk/budget2006/company-car-evaluation.pdf> Accessed 10/5/2010. See also HMRC’s 2008 report for tax revenue figures and further improvements in HMRC, ‘Report on the Interaction between Company Cars, Employee Car Ownership Scheme Cars and Mileage Allowance Payments’ (2008)

<http://www.hmrc.gov.uk/pbr2008/comp-car-tax-805.pdf> Accessed 10/5/2010.

37 Fullerton, D, Leicester, A and Smith, S, ‘Environmental Taxes’ in IFS, Dimensions of Tax Design: The Mirrlees Review (Oxford: OUP; 2010) at 484.

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lower rates are also available to non-commercial diesel vehicles, potentially leading to a distorting situation of inadvertently encouraging non-commercial consumption of diesel vehicles,³⁸ this reality demonstrates how both tax rates and tax types can be manipulated to partially reduce the tax burden for business taxpayers.

Recognising where final incidence falls in a given situation can assist a policymaker in designing a tax to cause private individuals to bear the burden without negative public opposition which could hinder the effectiveness of the tax. Loewenstein et al recognise the psychology where many taxpayers are uncertain as to where final incidence of some taxes will fall and may assume it is not them.³⁹ Since, for example, a corporate taxpayer can be nominally responsible for payment of a tax, the public may assume that they have been exempted from the burden (such as with CCL) whereas in reality the effects of elasticity and relationships (such as between retailer and consumer) cause final incidence to rest with non-corporate taxpayers. Such a method is available to the policymaker, though may not always work in practice if the public recognise the extent of such ‘stealth taxes’.⁴⁰

36.5.2 CONCLUSION

The decisions as to both whether, and how far, a policymaker intends business taxpayers to be included as burden-bearing parties in an environmental programme, can dictate the type of tax utilised. A policymaker may have good reasons for wishing to reduce the extent to which business taxpayers bear a tax burden thereby protecting the competitiveness and prosperity of

38 A point recognised in Fullerton et al, Ibid at 484.

39 Loewenstein G, Small DA, & Strad J, ‘Statistical, Identifiable, and Iconic Victims’, in McCaffery EJ &

Slemrod J, Behavioural Public Finance (New York: Russell Sage Foundation Press, 2006), pp. 32–46, at 38-39.

40 Macnaughton A, Matthews TA and Pittman J, ‘‘Stealth Tax Rates’: Effective Versus Statutory Personal Marginal Tax Rates’ (1998) 46 Can.Tax.J. 5, 1029-1066, at 1031-1033. See also Rupert TJ and Fischer C, ‘An Empirical Investigation of Taxpayer Awareness of Marginal Tax Rates’ (1995) 17, supplement, Journal of the American Taxation Association 36-59.

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the business economy. It is shown to be possible to provide an incentive for business taxpayers to reduce their environmental impact. However, a policymaker may also design a tax which inadvertently exempts businesses, even though it may have been intended that businesses would share the burden. If a policymaker wishes business taxpayers to bear some or the entire burden, then taxes such as VAT should be avoided and instead taxes such as excise duties can be used. If not, then it may be private individuals who end up bearing a disproportionate burden of an environmental programme.