Liberal Democrat leader Willie Rennie has proposed changes to Police Scotland which he says would enable its £35 million annual VAT bill to be scrapped.
Mr Rennie has written to Finance Secretary Derek Mackay urging him to change the structure of the force to allow a VAT exemption.
He told Mr Mackay the tax burden is “entirely of your own making” and said the SNP was “well aware” centralising the eight regional forces would incur VAT.
The Scottish police and fire services became liable for the tax since merging from regional into national organisations.
Mr Rennie said: “Ministers were fully aware of the issues VAT would present when they chose to undertake their centralisation drive and abolish the regional police forces yet they ploughed on regardless.
“Nonetheless, with Police Scotland facing a £200 million funding black hole, it is essential that other parties work constructively to repair the damage caused by the Cabinet Secretary’s predecessors.
“That’s why I am writing to the Cabinet Secretary today to propose changes, supported by Cosla, that would allow Police Scotland to be exempted from VAT.”
The change proposed is making Police Scotland a single shared local government body rather than a non departmental public body, so it can remain a single force but take advantage of VAT exemptions.
Mr Rennie wrote: “This is a model that Liberal Democrats do not favour as we have been opposed to the centralised service from the very beginning, but it would allow you to continue with the one, centralised service whilst avoiding the burden of VAT, which is now a considerable £35 million each year.”
He added that he backed Scottish Government calls for the Treasury to extend the VAT exemption for the Scottish police and fire services as it has exempted “a number of other UK bodies”.