This would mean:
- six million pensioners will pay no local tax at all - eight out of 10 pensioners will be better off, with another 15% unaffected.
- Half of all households will be better off - a further 25% will be broadly unaffected, and 25% of households will pay more.
- No council will collect more in local taxes than they would under council tax: the overall burden of local taxation will be£2.4bn lower.
- A simple system, collected by the Inland Revenue, rather than 352 separate local billing authorities. There would be no bureaucratic benefit system. The confusing 33-page council tax benefit form means 1.8m pensioners do not claim this benefit and pay£2.9bn a year more than they should - an average of£470 per person.
- Scrapping the lottery of council tax revaluation which is due to take effect in 2007 - and could see seven million households paying£200 or more extra every year.
Mr Kennedy said:
'Council tax is the most unpopular tax in Britain today because it is fundamentally unfair.
The council tax penalises pensioners and low income families.
It's a tax where the poorest 20% of pensioners pay nearly six times more as a proportion of their income than the richest 20% of our population.
Under our plans for a local income tax 15 million families, will pay less.
Six million pensioners would pay no local tax at all. And a family on the typical British household income of around£23,000 would pay£450 less.
Only the Liberal Democrats are proposing a fair and permanent solution.
At this election, if you want an end to the unfair council tax, the Liberal Democrats are the real alternative.'
Mr Davey said:
'Council tax is fundamentally unfair. It's been unfair since it was introduced by the Conservatives in 1993.
'The revaluation process underway will push up bills for people in property hotspots by 20% or more.
'And we know that less than half of pensioners would get any help with council tax bills from the Conservatives - and of those who do, the richest will get more than the poorest.
'Council tax is bad and will get worse unless we scrap it now. The other parties have no idea how to solve this crisis.
'Only the Liberal Democrats are offering a solution to the council tax at this election. A fair local income tax based on the ability to pay.'
Lib Dem local government spokeswoman in the House of Lords, councillor at Suffolk CC and LGA transport executive chair, Ros Scott, said:
'We would take six million pensioners out of the local tax system altogether: their incomes are so low they pay no national income tax, so they would pay no local income tax.
'Local income tax works in countries across the world including America, Sweden and Japan. The government's own review confirmed it would work in Britain.
'It's simple. It's affordable. But most importantly, it's fair.'
Click here to read Charles Kennedy speech in full