Longer-term factors, such as environmental change and public attitudes towards resource exploitation are also playing a role in the design of tax systems
The challenges of digitalisation and the Covid-19 pandemic have introduced unprecedented external pressures on what governments can tax, and how much revenue they need to raise from doing so, says ACCA (the Association of Chartered Certified Accountants) in a report today.
As policy makers try to balance the needs of business and society against the economic upheaval, tax systems are going to have to change.Foundations for a Sound Tax System: Simplicity, Certainty, Stability explains that like a tripod, a tax system’s strength and solidity comes from three legs - simplicity, certainty and stability.
Jason Piper, head of tax and business law at ACCA says: ‘A good tax system will benefit both governments and their people; a poor one will unsettle individuals and discourage business, with impacts far beyond the tax system itself.
‘Policy makers have an immense challenge in designing tax systems. They need to be able to accept short-term imperfections, while taking a measured approach to implementing genuine structural improvements that meet the principles of simplicity and certainty in a transparent and accountable way.’
Recognising that every jurisdiction has a different starting point, and different needs, the report’s recommendations set out a framework for policy design. The answers may be different, but every decision maker should think about the same questions as they consider each element of the system to avoid unexpected outcomes.
Stakeholders can equally use those principles as a basis to judge both existing systems, and the proposals for change. By considering alternative options, and looking at every stage from the underlying law, through the calculation and return process, and finally collection itself, simpler, better taxes that better fit the societies they work in can become a reality.
Jason Piper concludes: ‘Regardless of the policies adopted by government, the design of the tax system used to fund or implement them should be optimised to achieve a balance between simplicity, certainty and stability. The cumulative impact of each change should be considered not just in the context of the tax system but of the wider environment for business and taxpayers.’
Foundations for a Sound Tax System: Simplicity, Certainty, Stability includes advice for policy makers, with a series of recommendations:
Economic growth appears to be more strongly linked with reducing the administrative burden on business than with cutting tax rates.
The number of tax rules, and their ability to interact (or even conflict) with each other, should be kept to a minimum.
Tax law and tax administration should be simple. Society as a whole pays the price for complexity.
Resolving uncertainty is a poor second best to avoiding it in the first place.
Limiting the damage done by uncertainty should be a primary objective of tax system designers.
Agreeing consistent treatments for cross-border transactions is key to confident international trade.
If uncertainty about tax is going to stand in the way of projects that would otherwise benefit society then it has failed in its objective.
Stability is fundamental to effective planning and efficient compliance.
Investment in the training and retention of staff at every level should be a priority.
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