The powerful all-party Commons Treasury Committee has accused Customs & Excise of dragging its feet over a possible merger with the Inland Revenue. Speculation has mounted over the link-up following the committee's visit to Canada, which has successfully merged two similar departments. Supporters of the idea say a merger would help small businesses particularly by reducing the administration of corporation tax, income tax and VAT. Taking evidence from Customs officials, committee chairman Sir Michael Spicer asked if it was now feasible for senior Customs and Revenue managerial functions to be merged. Martin Brown, Customs' director of VAT policy, said the ongoing charity taxation review was an example of a how Customs and the Revenue could work together for a common goal. On e-commerce, the committee heard Customs wants to encourage businesses to get wired up and take advantage of opportunities to submit electronic tax returns over the Internet. 'The project will be fully rolled-out by 2002 making VAT returns via the Internet available to everybody,' Customs deputy chairman Timothy Walker told MPs. Committee members also questioned Customs officials on the taxation of e-commerce which has become a major concern for tax authorities in the UK and abroad with the OECD addressing the issue. Customs said it had already got agreement that the proper place to tax electronic transactions was in the place where the goods or services were consumed. Additionally, goods used electronically - like music computer files - would be treated as services and not carry duty. The committee also quizzed Customs on other aspects of its work including VAT compliance measures and bootlegging following the withdrawal of duty-free shopping in Europe. The current STEPS private finance initiative - which will see Customs estates integrated with the Revenue - was also discussed with MPs keen to determine if the project would provide better value for money than existing arrangements. During its review, the committee will also examine other aspects of Customs' work, including enforcement against the black economy and the effect upon legitimate small business of tax avoidance by competitors.
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