Devolved taxes – Smith Commission makes recommendations for Scotland

Tue 02 Dec 2014

The report by the Smith Commission proposes that the Scottish Parliament should have the power to set income tax rates and bands for Scottish taxpayers.  As regards other taxes, it said that Air Passenger Duty should be fully devolved and half of Scottish VAT revenues should be assigned to the Scottish Parliament (the report does not address the basis of determining VAT receipts arising in Scotland).

The Smith Commission was set up by following the September referendum and the report will be used in framing legislation to transfer more legislative functions to Scotland.  From reactions it is apparent that the report does not please everyone and time will tell whether initial reactions are political posturing or indications that there may yet be more fundamental changes to the proposals.

The report covers much more than tax.  The key tax proposal of income tax is set out in “Pillar 3” of the report.  All income tax rates, and size of bands on earned income, will be set by the Scottish Parliament.  It will retain all income revenue tax raised in Scotland.  The legislative structure of income tax will remain applicable UK wide.