Reform Scotland said the Treasury’s previous justification that EU law prevented VAT being devolved would no longer apply after Brexit, clearing the way for full devolution of the levy.
Half of VAT revenues are to be assigned to the Scottish Parliament as part of its post independence referendum devolution deal. It is intended to act as an incentive for MSPs to find ways to increase them.
When the Smith Commission proposals were being devised in November 2014, the UK government said that full devolution was not possible under European Union rules, which would not allow for differential VAT rates within a member state.
Following the UK’s vote to leave the EU, Reform Scotland director Geoff Mawdsley said there was now no reason for Westminster not to give a commitment to devolve VAT in full to the Scottish Parliament.
The devolution call comes in a submission to the Scottish Parliament’s European and external relations committee's inquiry into Scotland’s relationship with the EU following the Brexit vote.
“With income tax being the only major tax to be devolved under the current proposed settlement [from April 2017], over two-thirds of all tax revenue raised by Holyrood will be from that single source. This over-reliance on income tax means that there is little scope to effect real reform and create a better environment for economic growth,’ Mawdsley said.
“The devolution of VAT would enable Holyrood to raise a sum roughly equivalent to that of income tax. Crucially, it would broaden the range of devolved taxes, which would present a better opportunity for tax reform, and mean that the Scottish Parliament is responsible for raising 63%.”
