Calls for UK to do away with corporation tax entirely

A plan that wouldn't bode well for Irish competitiveness when it comes to foreign direct investment...

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The the flag of the United Kingdom flies alongside the European and Irish Republic flag on a building in Sligo Insititute of Technology | Image: Potocall Ireland

The Adam Smith Institute has recommended a reboot of the UK's tax system to counter the potentially negative impact of Brexit and one of its suggestions could be giving the Irish Government sleepless nights.

The London-based think tank has proposed a complete abolition of Britain's corporation tax, a move which would pose a serious threat to Ireland's ability to attract multinationals.

It suggests phasing in the new system, with an initial cut to Ireland's much-discussed rate of 12.5%. This would then be halved to 6.25%, before the UK would ultimately do away with corporation tax altogether.

In a note from its president, Madsen Pirie, the institute said corporation tax is not paid by companies:

"It is paid by the employees of companies, by their customers, and by their shareholders.

"Without corporation tax, businesses would have more money to distribute to shareholders in dividends, to increase the pay of their employees, and to keep prices keen for their customers.

"Although the government would forego the amount it receives in corporation tax, it would receive more income tax from the higher dividends to shareholders and from the increased wages to employees, and more VAT from the extra spending power the lower prices put into the pockets on customers."

Overall, it feels the move would "make the UK a very attractive location for world businesses, and drive a real boost to economic growth".

Thus far, new UK Chancellor of the Exchequer Philip Hammond has not committed to George Osborne's previous plans to cut the rate below 15%. 

The institute has, however, been credited with influencing the Conservative Party in the past.