As policymakers try to balance needs of business and society against economic upheaval, tax systems will have to change, new ACCA report says
According to the report, Foundations for a Sound Tax System: Simplicity, Certainty, Stability, 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.
Longer-term factors, such as environmental change and public attitudes towards resource exploitation are also playing a role in the design of tax systems. 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.
Foundations for a Sound Tax System: Simplicity, Certainty, Stability includes advice for policymakers, 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.