Friday, May 21, 2010



A bit over 10 years ago the ICAEW Tax Faculty published its Ten Tenets for a Better Tax System. This was intended as a set of principles by which tax policy ought to be judged.

Last February the Treasury published a consultation document, “Tax Framework for Business” (At least it was called a consultation document. Unlike other such documents it did not call for comments but simply gave as a footnote an e-mail address to which comments could be sent “ahead of the budget”, i.e. in contempt of the then government’s own three-month standard consultation period). The tax framework set out six principles against which the then government would consider changes in tax policy. It is to be hoped that the present government will also endorse these principles as they are remarkably similar to the Tax Faculty’s Ten Tenets.

Ten Tenets Tax Framework

Statutory -
Certain ) stability and certainty
Constant )
Simple Simplicity
Easy to collect and calculate Tax administration/compliance costs
Properly targeted -
Subject to proper consultation -
Regularly reviewed -
Fair and reasonable Fairness
Competitive (Competitiveness
(Minimum distortions to commercial

The above are in no particular order. It is perhaps not surprising that the Treasury omits “Statutory”, i.e. that Tax Legislation should be enacted by statute, not enacted by the Treasury in the form of secondary legislation (statutory instruments) or by HMRC in the form of guidance or tertiary legislation (binding instructions). Proper consultation, although not in the Treasury’s list was probably omitted as being a given. In the last 10 years there has been, if anything, too much consultation, although it is questionable how much of it met the “proper” objective.

I doubt that many in the Tax Faculty would suggest that tax legislation over the last 10 years has paid much attention to the Ten Tenets. The corollary is that it has not paid much attention to the Tax Framework either. There is an old saying, “actions speak louder than words”. I hope that George Osborne will not, like his predecessors, simply pay lip service to the Treasury’s Tax Framework but will both adopt it and keep to it. Perhaps the Regulatory Impact Assessments introduced by Gordon Brown – which in practice very few believed as the government’s assessment of the costs to businesses of proposed tax changes always seemed wildly understated – could be replaced by a Tax Framework Assessment showing to what extent proposed tax changes conform with the Framework.

Of course no change can be expected to tick all of the boxes. For example, simplicity and fairness are poor bedfellows as, almost by definition, simplicity is likely to lead to unfairness in many cases. Fairness requires legislation to foresee all of the circumstances in which the legislation is likely to impact and ensure that it impacts fairly in each. Simplicity inevitably is likely to mean dealing only with the most common situations.

The Tax Framework also omits, I suspect deliberately, what has probably been the major driver of uncertain, complex, often poorly-targeted and sometimes unfair legislation in the last 10 years. This is Combating Tax Avoidance, which probably constitutes over 50% of the tax legislation over that period. This is set to continue whatever government we have. Tax avoidance by its nature militates against either simplicity (as complex legislation is needed if the legislation is to be properly targeted) or certainty (which in recent years has on several occasions been jettisoned by the introduction of mini general anti-avoidance provisions (GAAR) (or Targeted Anti-Avoidance Provisions as the last government preferred to call them) although targeted in this context meant no more than that a general provision applied only in a specific situation).

Although many people put simplicity at the top of their list of principles, indeed the Conservative Manifesto pledged some sort of Simplicity Commission, most businesses would actually put certainty far ahead of simplicity. People want to know the likely tax effect of their transactions before entering into them. A simple system that gives HMRC a high degree of discretion to challenge transactions that they decide they do not like, which is what a GAAR is, may look superficially attractive, but makes doing business extremely difficult.



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