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Monday, July 22, 2013




       AIM (Alternative Investment Market) was lunched on 19 June 1995, as a small replica of the London Stock exchange, which caters for small companies (Wikipedia). The objective of establishing the market is to allow small companies that could not meet the standards set by the main London Stock exchange source for capital through its alternative means. Thus, in order to make AIM attractive to investors many of the requirements of the London Stock Exchange such as high capitalization, tax deductions, and number of shares issued were relaxed. These attractions made it possible for over 270 foreign companies to list their shares on AIM as at December 2005. Under AIM, listed companies are expected to either comply with the few regulations found in the market or explain why they cannot do so. NOMADs or Nominated Advisers are the central feature of the market, because of the central role they play between the market and the listed companies. Unlike venture capital firms, well known in the US, AIM’s companies are not start up, though they are small and highly risky. Because of the risk associated with investment in the market most of those that invest in it are wealthy individuals and institutional investors.
        ISA (Individual Savings Account) was introduced in 1999 in order to replace the old style tax free savings. As a tax free investment instruments it is available only to the resident of the United Kingdom. Money deposited in ISA account is not subject to capital gain tax and income tax, whether at the time of withdrawal or the holding period. An ISA account can be in the form of cash or stock and shares, a cash ISA is like any other deposit account if not for it favourable tax condition; while stocks and shares ISA consist of quantifiable investment associated with the risk of losing at least five percent of the investment. To higher rate tax payers who pay about 40% of their returns to tax authorities, ISA is indeed attractive. Limit has been enforced on the amount an individual can invest in ISA in a year, the amount of 11,280 dollars. 


       Tax in Britain is collected at two different levels: at the upper central level tax is being collected by the central government (Her Majesty’s Revenue and Customs), while at the lower level by local government authorities. Taxes that fall at the upper level are income tax, national insurance, VAT, corporation tax, as well as fuel duty. Lower authority tax includes, council tax, business rates in England and Wales, and fees and charges on street parking. In Britain tax year or fiscal year runs from April 1 to March 31. Most shares on AIM exchange are exempted from inheritance tax, this single fact increase it attraction to wealthy investors. The website of London Stock Exchange describe AIM as “the most successful growth market in the world”, at the centre of AIM attraction for investors is its tax waivers. ISA main advantage is that interest on deposit is not tax, unlike most other savings accounts. Dividends are not subject to additional tax apart from the tax the parent company paid to the tax authorities; there is no capital gain tax or tax on the interest yield from bond.


      In the last few days there were many cheers among the investment community on the possible introduction of changes that will allow AIM stocks to be included among Tax free ISA wrappers by autumn (The Telegraph). This move will, therefore, incorporate the inheritance tax-free status of AIM into ISA holding, further widening the tax break opportunities inherent in ISA. But, the main issue here is how all these would benefit the British government effort to increase it tax base.
   The following measures will help increase British authorities’ tax revenue from AIM and ISA
              In the case of investments in AIM shares, speculative transactions on the shares listed on the exchange should be charged additional taxes. This will help stabilize the market, increase government tax revenue, and persuaded investors to hold their holdings for long period of time to allow for the development of the listed companies
           The ISA deposit limit above which tax collection set in should be moved up to attract more people to put their money into ISA, while at the same time increasing the tax rate charge on the amount above the limit
           The spending pattern of people who put their money into AIM and ISA (especially in the case of ISA) should be studied and thereafter indirect tax be levied on these consumer expenditures       
                     Additional tax should be deducted from the corporate profit declare by the listed company on AIM market, but, in a period when there is lost instead of profit no deduction should be effected. But, for companies whose operation is not base in the UK such deduction should be on the capital gains that arise from listing on the market
           NOMADs firms doing there business on the market should be tax in accordance with the volume of their transaction and the risk involve there in. This will help regulate the type of transactions that NOMADs engage in.


            In a situation where government is trying to create an atmosphere in which more investable capital and savings will be attracted in the one hand, and government revenue (tax) will be maximized on the other hand, clash of interest is inevitable, what in economic parlance is called trade-off. This is what is happening in the case of removing certain taxes and increasing government revenue at the same time. It is issues such these that make taxation a very complicated field. For balance to be achieved in such a complex scenario, government should be very careful in knowing which type of tax to introduce; so that it will not defeat the main objective of introducing tax breaks in the first place. I strongly believe that some of the ideas I suggested above will help British government in dealing with situations such as this one.


Browne, J. and Roantree, B. (2012), “A Survey of The UK Tax System”, Institute for Fiscal Studies, UK
Browning, E. K. (1989), “Elasticities, Tax rates, and Tax revenue”, National Tax Journal, Vol. 42, No. 1, pp 45 - 58
Shah, C. R., “taxation of transaction of shares/securities”, downloaded from