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IMF warns against Brexit

The International Monetary Fund

The cases for and against the UK's European Union membership are beginning to take shape, with both sides of the debate forming what they hope will be an argument capable of convincing the Great British public to come round to their particular way of thinking.

The debate has transcended what would have otherwise be considered strong political barriers. Prime Minister David Cameron, himself a strong advocate for staying in the EU, saw his Conservative Party recently rocked by the revelation that London Mayor Boris Johnson is keen to push the agenda of the Brexit campaign.

The decision from Mr Johnson will be a significant boost for the out campaign, but Mr Cameron will be comforted by some powerful supporters of his own.

The end of February saw the International Monetary Fund (IMF) become the latest organisation to wade into the debate, drawing on the fears over economic growth pushed by the In campaign.

According to IMF chief Christine Lagarde, the uncertainty of leaving the EU could have a detrimental effect on the UK's growth.

Ms Lagarde told CNN: “Uncertainty is bad in and of itself. No economic player likes uncertainty. They don’t invest, they don’t hire, they don’t make decisions in times of uncertainty.”

Pressure on growth, along with slowing global trade and increased turmoil in the financial markets are, according to the IMF all contributory factors in warning against an exit from the EU.

The Washington-based organisation added that Britain had largely benefitted from trade and financial ties with the EU and the migration rights that come with it.

However, Ms Lagarde has so far decided against putting a figure on the financial cost to the UK of leaving the EU, admitting that her prediction into the detrimental effects was based on a "hunch".

Taking an interest in growth

The IMF has taken great interest in the UK economy of late, and recently showed its support for how it was being run by the Conservative government.

However, that's not to say feedback on its efforts has been universally positive

Indeed, Ms Lagarde's comments come amid calls from the IMF to make changes to medium-term fiscal consolidation strategy in order to leave it in a strong position for growth.

Its 2015 Article IV consultation report for the UK argued that the scaling back of distortionary tax expenditures (for example, non-standard zero VAT rates) would help to improve the efficiency of the country's tax regime, increase neutrality and free up revenues.

The IMF adds that further property tax reforms could help to ease the UK's housing shortage, urging the easing of the tax burden on property transactions and increasing the tax on holdings and levies based on property values.

It also recommended reducing council tax discounts for properties with a single occupier.

Other reforms

How those opinions and recommendations will impact on the Brexit debate remains to be seen, but the property tax is not the only area where experts have called for reform.

The government's push for staying in the EU has been noticeably driven by the reforms reportedly negotiated by David Cameron.

He said in a statement: "We will be in the parts of Europe that work for us, influencing the decisions that affect us in the driving seat of the world's biggest market and with the ability to take action to keep people safe.

"And we will be out of the parts of Europe that don't work for us.

"We have permanently protected the pound and our right to keep it. For the first time, the EU has explicitly acknowledged it has more than one currency.

"Responsibility for supervising the financial stability of the UK remains in the hands of the Bank of England, so we continue to keep our taxpayers and our savers safe."

While there may have been scepticism in some circles about the effectiveness of these reforms, the fact is that many within the corridors of power in Europe have accepted that some areas need to be reformed.

According to the European Commission, the EU VAT system is one such area, with the VAT gap - estimated to be €180 billion ($198 billion) in 2013 - proving to be a particularly pressing issue.

The VAT gap refers to the difference between the theoretical VAT revenue receipts and the VAT actually collected by member states.

The European Commission now claims the gap could be reduced by confronting practices such as tax avoidance, evasion, fraud, and the provision by member states of reduced value-added tax rates and concessions.

It added that the VAT system "needs to be modernised to reflect innovative business models and technological progress in today's digital environment".

The plan comes on the back of the Commission's Action Plan for a simple, efficient, and fraud-proof definitive system of value-added tax tailored to the single market.

The new rules will reportedly be around the destination principle, which operates on the idea that supplies should be taxed where they are effectively used and/or enjoyed.

The complexities of the VAT system are also set to be examined in a bid to make the system simpler for smaller businesses, broadening the scope of the VAT base while examining the VAT treatment of the activities of public bodies.

While Mr Cameron will be confident that such pledges for reform will be enough to swing a vote to stay in the EU, the Brexit movement is likely to stick to its guns in demanding that Britain goes it alone.

The views expressed in this article are not those of Praxity. Praxity, the world biggest Alliance of independent Accountancy and allied firms, does not hold a view on how the UK's voters should vote.