V. Imputation and Forward-Shifting
16.75. In recommending a full imputation system as the appropriate long-term target, with a partial imputation as an intermediate step, the Committee carries to its logical conclusion its assumption that company tax is best treated as a levy on the income of shareholders, despite the probability that in cases where competition is weak it may be shifted forward. Others may believe that the frequency of such shifting is, and would be even under an imputation system, so great that company tax should be designed on an assumption of partial shifting (which, since company tax rules must apply universally, would have to be uniform). The Committee, to repeat, rejects this approach, but its logical implications may be briefly noted.
16.76. On this view company tax is partly an indirect tax on consumers and only partly a tax on shareholders. The former part, it would have to be conceded, is non-neutral and probably inequitable; but as long as the company tax itself exists, it seems quite impracticable to remedy this.
16.77. As regards its impact upon shareholders, the crucial consideration would be that the effective company tax rate is below the nominal, and presumably intended, rate. The simple remedy would be to increase the nominal rate above the level that would otherwise be felt appropriate.
16.78. The assumption of shifting would not destroy the general case for imputation. On the assumption that imputation
credits are forward-shifted in the same way
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as the company tax itself—if, in other words, the imputation
credit involves a reduction in the amount of gross company tax shifted—the credit should be raised to match the increased
nominal company tax rate.