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A free market think tank has joined calls to scrap "inefficient" corporation tax

Mark Sands
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Politicians have failed to understand who pays corporation tax, the IEA says. (Source: Getty)

Margaret Thatcher's favourite think tank has joined calls to abolish corporation tax, blasting the failure of politicians to grasp the impact of the charge.

The free market backing Institute of Economic Affairs said long overdue reform of the system has been held back by a “fiction” that the bill is foot by companies, instead of individuals.

And in a report issued today, it the failure to reform corporation tax had left it no longer fit for purpose.

Instead, the IEA is calling for a new charge on distributed income, which it said would lessen incentives for avoidance, and raise revenue growth.

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IEA report author and financial services research fellow Diego Zuluaga said: “Economic theory and evidence have increasingly shown corporation tax to be one of the most inefficient ways of raising government revenue. Yet, partly due to the fiction that it is companies rather than people - workers, shareholders, consumers - who bear the tax, meaningful reform has proven elusive.

"At a time of great change for the British economy, bringing our tax code into the 21st century is more important than ever. A competitive and growth-prompting tax system will enable the UK to fully reap the benefits of globalisation and technological innovation."

It comes after the Adam Smith Institute made similar recommendations in July, calling for the end of corporation tax and farming subsidies in a bid to "reboot" Britain.

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