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, according to the Association of Chartered Certified Accountants’ (ACCA) Foundations for a Sound Tax System: Simplicity, Certainty, Stability report.
ACCA head of tax and business law at ACCA said: “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.
“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.”
The report recognises that every jurisdiction has a different starting point and different needs and in its recommendations sets out a framework for policy design:
- 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.