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The ‘hand of god’ plays with the principles of tax

ACCA | Association of Chartered Certified Accountants

4 min read Partner content

ACCA Tax and Business Law Manager Jason Piper reviews the tax system and writes 'policymakers should be aiming for is a system that is simple, certain and stable'.

Policymakers are the gods of tax. They have absolute power over the systems they control, free to play with rates or juggle reliefs and exemptions as they feel drawn. And they don’t just control the rates and bases of tax, but the administration too. Civil servants may do their level best to protect their administrative fiefdoms from the whims of their political masters, but such efforts can often be in vain. Masters of all they survey, politicians have dominion over what is perhaps the single most important element of modern societies.

Of course there are some limits over what they can do on VAT, and accession to a European corporate tax base would tie their hands still further. But the point is there nevertheless; it’s politicians who, on behalf of all of us, control the system that alienates resources from identified individuals and entities and pours them into a central pot from which they are redistributed, either to benefit us all or for the direct benefit of those who wouldn’t otherwise have access to the monetary embodiment of those resources.

But do they behave in a fittingly godlike manner, displaying omniscient impartiality as they carefully tend to the details of administration while guiding the broad sweep of policy with considered  benevolent wisdom?  Or are they more like the gods of the late Sir Terry Pratchett’s Discworld series, a bunch of slow witted and self-interested nouveau riche, surfacing from the bubble of their own petty and insular squabbles only long enough to play games with the fate of their subjects, neither understanding nor caring what the impacts of their interference might be?

It would in all honesty be unrealistic to expect the former, and unkind to expose the latter. Tax systems are too big, too complex and too dependent on myriad external factors for even experts who devote their entire careers to them to really be sure of how to fix them. Asking public servants from other walks of life, and with other issues to cover (after all, the Exchequer Secretary is invariably a constituency MP) to magically absorb the decades of knowledge and expertise that would be needed to personally oversee every detail of tax policy and administration would be absurd.

But what we can do is ask them to keep some high level principles in mind every time they do think about changing the tax system - and sometimes that initial thought process is as far as it should go. There are plenty of cases where other mechanisms would offer a better way to do something, and some where tax is the last option that should be taken.

What policymakers should be aiming for is a system that is simple, certain and stable. Any change is inevitably going to compromise at least one of those principles, so it’s a matter of assessing the change against each of those benchmarks, and taking just a few minutes at the early policy formation stage to think “is there another way we could do this better?” Of course, the measurement of the tax system by reference to those yardsticks isn’t restricted to the development phase. We can and should judge politicians’ performance on tax by whether they’ve managed to make the tax system more simple, more certain and more stable, or if they’ve introduced unnecessary change that complicates and degrades the system. This introduces uncertainty not just about what the rules mean now, but what they might be and how they might change without warning, or even retrospectively, in the future. After all, the one undeniable characteristic of every minister is that they’re only a tax god until the next election.

By Jason Piper, Tax and Business Law Manager, ACCA

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