Research has revealed that simplicity in tax may be even more important to the economic health of nations than might have been suspected, as countries which have concentrated on reducing the administrative burden of taxes have seen faster growth than those which have focussed on cutting the financial burden by cutting tax rates. The paper analyses the aspects of system design and implementation which need to be taken into account when pursuing ‘simplicity’ in tax.
ACCA believes that understanding and complying with tax legislation and requirements should be as simple and straightforward as possible.
Where there is excessive complexity in the system, and a lack of clarity as to what is expected of taxpayers and their advisers, the potential will exist for mistakes and deliberate contravention of the rules. A commitment to simplicity will help both taxpayers and the tax authorities to ensure that the tax system operates effectively.
Simplicity, certainty and stability are in ACCA’s view the three cornerstones of a good tax system – but what exactly does ‘simplicity’ mean? Paradoxically, it is probably the most complicated of the three cornerstones to define. Questions of ‘simplicity’ permeate every aspect of tax, from its underlying objectives through to the mechanisms chosen for achieving those aims and to the practicalities of implementation.
There is almost universal agreement that tax should be simple, but why might it ever not be? Are there acceptable reasons for allowing complexity to creep into the system? What can and should be done to promote simplicity in tax?