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Tax systems are going to have to change – but how can we make sure they’re changing for the better?
ACCA has identified three fundamental considerations which every system should strive for, and by which citizens can measure the success of governments and tax administrations in developing laws and processes, and the resources to administer them, for the greatest benefit of society. Regardless of the policies adopted by government, the role of the tax system in funding or implementing them should be designed to best reflect the optimal balance between simplicity, certainty and stability.
This report sets out three key principles which policymakers should have in mind as they make changes to what is taxed and how.
The three functions of a tax system (revenue raising, redistribution and regulation of economic behaviour) will be achieved in different ways at different times. As policy makers react to change, and seek to influence it themselves, they will be faced with choices over what to tax, and how to do so. As well as guiding policymakers, they can serve as a checklist for stakeholders as they hold the decision makers to account, and guide discussions about proposed changes.
What are the principles?
Simplicity, certainty and stability: in ACCA’s view these are the three cornerstones of a good tax system. Policy makers should consider them any time they plan to change the tax system. They are also the benchmarks by which taxpayers can assess the effectiveness of government in maintaining and improving tax systems.
Why do they matter?
Tax systems are fundamental to society. They are the conduit through which the state gathers the resources it needs to support public spending, and are often the direct mechanism of implementing policy. Every citizen is affected by the operation of tax systems, and the efficiency and effectiveness of the system and its administration will have effects far beyond the direct impact of tax collection.
Tax systems have grown ever more complex, reflecting the societies and economies in which they operate. As the world changes around them, tax systems must change to keep up. The arrival of the container, the executive jet and the internet have changed the face of world trade and domestic economies beyond all recognition. The enhanced mobility of goods, people and capital has transformed societies but the importance of tax in maintaining those societies is undiminished.
The impact of the Covid pandemic has prioritised revenue raising for governments, but longer term changes driven by demographic shifts, climate change and the digitalisation of the economy have not gone away. As governments seek to 'rebuild better', the long term importance of how tax systems influence behaviour must be factored into whether fundamental changes are made, and if so what they should be.