The way the running costs of a local income tax (LIT) scheme would escalate if each council is allowed to set its own rate was laid out less than 18 months ago by the Burt Review. It explains why right across the business spectrum in Scotland there is unease about plans for LIT and outright opposition to local tax variation.

The Burt review of local government finance in 2004 described the set-up costs of a flat-rate 3p as "modest" for the Revenue, at around £12m and for the Department of Work and Pensions at £7m, with both likely to seek compensation from Holyrood. Costs to employers were estimated at up to £60m, but could be phased.

Running costs for this system were estimated by Burt at around £10m across the Revenue and DWP, and between £7m and £18m for employers. But if up to 32 separate calculations had to be made for different local rates these costs would rise to between £12m and £26m for the government bodies, and between £17m and £28m for employers.

In their submission on Tommy Sheridan's proposed service tax, the Federation of Small Businesses said: "The Federation believes that the introduction of any kind of service tax or local income tax in Scotland would be problem-atic and result in additional costs for employers who would be expected to provide local authorities with information on staff salaries."

That argument still applies, said a spokesman, who pointed out the particular concern businesses had where employees could travel in to work from difference council areas all levying different LIT rates. "That bureaucracy would be time consuming and costly, so our members would prefer a flat rate across Scotland," he said.

Iain McMillan of CBI Scotland said they had several concerns, including the whole perception of Scotland as a place with higher income tax, the fact that the 3p would apply not just to the basic rate but up through the bands, and the impact on organisations whose payrolls were on both sides of the border.

"We're very worried about it," he said. " We were very supportive of the government's council tax freeze but we are against LIT which creates real winners and losers and would be expensive and bureaucratic to collect.

David Watt of the Institute of Directors said they were against anything that penalised hard work or entrepreneurial attitudes, adding: "Bluntly this is potentially unworkable. The last thing business wants is more of a legislative burden or tax collecting responsibilities on behalf of government."

Ahead of today's consultation launch there was a flurry of political exchanges. Alex Salmond quoted the current Treasury Statement of Funding Policy and previous parliamentary answers by Alistair Darling that council tax benefit comes "within the Scottish block" to argue that the money could not be denied to Holyrood if it opts for a local income tax.

Conservative finance spokes-man Derek Brownlee insisted the proposal was in no way a local income tax and said of the Liberal Democrats: "Will they be conned by the SNP sleight of hand'? Does the sign above the door at the talks read Abandon all principles here'?"

Labour's Andy Kerr disputed the government's claim that 90% of Scots would be better off under LIT than the council tax. He issued a list of questions about the proposals, urging the LibDems "to think long and hard about these questions before making a pact with a devil."

But speaking before his discussions with Finance Secretary John Swinney last night, Tavish Scott, attacked Labour's "flimsy arguments" in favour of the council tax. "When some pensioners pay six times as much of their income in council tax as the richest people you know that something has gone very wrong with fairness in Scotland," he said.