The government has not done enough to set out the principles underlying tax policy, according to the House of Commons Treasury Committee.
The government has not done enough to set out the principles underlying tax policy, according to the House of Commons Treasury Committee.
In a ‘preliminary’ report, the committee has ‘endeavoured to identify’ those principles and consider how tax policy can best support economic growth.
It noted that ‘a tax system which is theoretically structured to promote growth, that is, which has the basic principles right, will not succeed if businesses are faced with constant change, or if the inefficiency of collection outweighs any benefits’.
Andrew Tyrie, Chairman of the committee, said: ‘The coherence of the system affects the basic principles of both fairness and growth – a system which is riddled with anomalies will not be considered fair and will impair economic performance. It also matters for the procedural principles of certainty, stability and practicability, since incoherence will make all of these harder to achieve.’
The report warns that a tax system which is felt to be fundamentally unfair will quickly lose political support.
‘Although judgements about the fairness of policy details are politically contested and a major way in which parties distinguish themselves from one another, there is a significant amount of consensus on fairness, and differences are often matters of degree and emphasis,’ the committee said.
It noted that ‘the scope for tax arbitrage has grown substantially over the last quarter of a century and globalisation is likely to increase it further’.
A tax system which is not competitive by international standards will not support growth, it said. ‘Competitiveness is also not a simple matter of tax rates, although they have a bearing, but of the stability of the system as a whole.’
Vincent Oratore, the CIOT’s President, said: ‘We have long argued that tax changes need to have more regard to coherent and continuing tax policy: the Treasury Committee’s endorsement of the benefits such an approach will bring is appropriate and welcome.
‘The Treasury Committee has joined all of those involved with the tax system in saying that the process of tax policy making has to improve,’ he added.
Tax policy 'should be practicable'
The Treasury Committee recommended that tax policy should:
‘1. be fair. We accept that not all commentators will agree on the detail of what constitutes a fair tax, but a tax system which is considered to be fundamentally unfair will ultimately fail to command consent.
‘2. support growth and encourage competition.
‘3. provide certainty. In virtually all circumstances the application of the tax rules should be certain. It should not normally be necessary for anyone to resort to the courts in order to resolve how the rules operate in relation to his or her tax affairs. Certainty about tax requires
i. legal clarity: Tax legislation should be based on statute and subject to proper democratic scrutiny by Parliament.
ii. Simplicity: The tax rules should aim to be simple, understandable and clear in their objectives.
iii. Targeting: It should be clear to taxpayers whether or not they are liable for particular types of charges to tax. When anti-avoidance legislation is passed, due regard should be had to maintaining the simplicity and certainty of the tax system.
'4. provide stability. Changes to the underlying rules should be kept to a minimum and policy shocks should both be avoided. There should be a justifiable economic and/or social basis for any change to the tax rules and this justification should be made public and the underlying policy made clear.’
The Treasury Committee said it was important that a person's tax liability should be easy to calculate and straightforward and cheap to collect. ‘To this end, tax policy should be practicable.’
It added that the system as a whole must be coherent, and new provisions should complement the existing tax system, not conflict with it.
The government has not done enough to set out the principles underlying tax policy, according to the House of Commons Treasury Committee.
The government has not done enough to set out the principles underlying tax policy, according to the House of Commons Treasury Committee.
In a ‘preliminary’ report, the committee has ‘endeavoured to identify’ those principles and consider how tax policy can best support economic growth.
It noted that ‘a tax system which is theoretically structured to promote growth, that is, which has the basic principles right, will not succeed if businesses are faced with constant change, or if the inefficiency of collection outweighs any benefits’.
Andrew Tyrie, Chairman of the committee, said: ‘The coherence of the system affects the basic principles of both fairness and growth – a system which is riddled with anomalies will not be considered fair and will impair economic performance. It also matters for the procedural principles of certainty, stability and practicability, since incoherence will make all of these harder to achieve.’
The report warns that a tax system which is felt to be fundamentally unfair will quickly lose political support.
‘Although judgements about the fairness of policy details are politically contested and a major way in which parties distinguish themselves from one another, there is a significant amount of consensus on fairness, and differences are often matters of degree and emphasis,’ the committee said.
It noted that ‘the scope for tax arbitrage has grown substantially over the last quarter of a century and globalisation is likely to increase it further’.
A tax system which is not competitive by international standards will not support growth, it said. ‘Competitiveness is also not a simple matter of tax rates, although they have a bearing, but of the stability of the system as a whole.’
Vincent Oratore, the CIOT’s President, said: ‘We have long argued that tax changes need to have more regard to coherent and continuing tax policy: the Treasury Committee’s endorsement of the benefits such an approach will bring is appropriate and welcome.
‘The Treasury Committee has joined all of those involved with the tax system in saying that the process of tax policy making has to improve,’ he added.
Tax policy 'should be practicable'
The Treasury Committee recommended that tax policy should:
‘1. be fair. We accept that not all commentators will agree on the detail of what constitutes a fair tax, but a tax system which is considered to be fundamentally unfair will ultimately fail to command consent.
‘2. support growth and encourage competition.
‘3. provide certainty. In virtually all circumstances the application of the tax rules should be certain. It should not normally be necessary for anyone to resort to the courts in order to resolve how the rules operate in relation to his or her tax affairs. Certainty about tax requires
i. legal clarity: Tax legislation should be based on statute and subject to proper democratic scrutiny by Parliament.
ii. Simplicity: The tax rules should aim to be simple, understandable and clear in their objectives.
iii. Targeting: It should be clear to taxpayers whether or not they are liable for particular types of charges to tax. When anti-avoidance legislation is passed, due regard should be had to maintaining the simplicity and certainty of the tax system.
'4. provide stability. Changes to the underlying rules should be kept to a minimum and policy shocks should both be avoided. There should be a justifiable economic and/or social basis for any change to the tax rules and this justification should be made public and the underlying policy made clear.’
The Treasury Committee said it was important that a person's tax liability should be easy to calculate and straightforward and cheap to collect. ‘To this end, tax policy should be practicable.’
It added that the system as a whole must be coherent, and new provisions should complement the existing tax system, not conflict with it.
