Supporting the global profession
ACCA's 12 key tax principles inherent in, and underpinning, a good tax system
ACCA first published its Twelve tenets of tax in a policy paper of 2009. The principles set out then hold true even against the changing backdrop of world affairs, in which taxes remain a key strategic issue.
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 for 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, however, have grown increasingly complex, reflecting the societies and economies in which they operate. As the world changes, tax systems must change to keep up. The arrival of the shipping 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 tax systems’ influence over behaviour must be factored into decisions about whether fundamental changes are made and, if so, what they should be.
ACCA’s 12 tenets of tax:
- Tax law should be simple.
- Tax administration should be simple.
- Complexity costs: it distorts behaviour.
- Certainty promotes efficiency.
- Principles-based regulation can reduce certainty.
- If the law itself cannot be certain, its application must be.
3 Openness and Transparency
- Taxpayers should understand what they are paying in tax.
- Taxpayers should understand why they are paying a tax.
- Taxpayers should understand the benefits of paying tax.
- Systems should be designed to minimise leakage.
- Administrative burdens on taxpayers should be minimised.
- Tax authorities should embrace the positive features of technological advances.
- The system should treat taxpayers and their peers equally and consistently.
- Income should be subject to tax only once.
- Tax authorities should cooperate to avoid double taxation.
- Taxpayers have rights as well as responsibilities.
- Imposition of taxes should be neither arbitrary nor vexatious.
- Administrations should be held to account for the exercise of their powers.
7 A presumption of neutrality
- Differentiated taxes can artificially influence behaviours.
- Unless for a clearly identified policy reason, distortion should be rejected.
- Discriminatory taxes, in particular, must be open and accountable.
8 Tax shifting has a role to play
- It can be right to use tax in pursuance of agreed social policy.
- Green taxes, in particular, are internationally relevant.
- Accountants have a wider role to play in accounting for the environment.
- Tax burdens should be considered as a percentage of GDP.
- Sudden increases in taxation can pose a significant threat to stability.
- Impact assessments are essential to measuring the economic impact of changes.
10 Taxing rights are a matter of national sovereignty
- Maintenance of tax revenue is vital to governments.
- ACCA supports the principle that countries should determine their own tax affairs but that international frameworks should be respected.
- A ‘race to the bottom’ on tax rates should be resisted.
11 Tax is subject to the rule of law
- Taxpayers have a moral obligation to pay the taxes due by law.
- Taxpayers should not be expected to second guess the intentions of lawmakers.
- Artificial transactions break the contract between taxpayer and state.
12 Accountability and regular review
- Tax systems should incorporate review mechanisms.
- Outdated laws should be removed.
- Governments and tax authorities should devise clear metrics for review.
Supporting the global profession
"As governments seek to 'rebuild better', the long-term importance of tax systems’ influence over behaviour must be factored into decisions about whether fundamental changes are made and, if so, what they should be"Jason Piper, head of tax and business law