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Select committee calls for better tax oversight

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15th Mar 2011
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The coalition government has not done enough to set out the principles underlying its new approach to tax policy making and would benefit from more direct input from tax experts, according to a House of Commons report.

The Commons Treasury select committee this week reported on the evidence gathered at recent hearings into tax policy.

Noting “a surprising degree of convergence” from the evidence presented, committee chairman Andrew Tyrie advanced a set of principles (see below) that point “a direction of travel” towards a tax system that would secure consent and improve the performance of the economy.

Tax policy principles

According to the MPs, Tax policy should:

• be fair to ensure that it commanded consent

• support growth and encourage competition

• provide certainty. “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.”

• provide stability. Changes to the underlying rules should be kept to a minimum and policy shocks avoided.

• be straightforward and practical: a person should be able calculate their liability, and it should be easy to collect.

• be coherent.

“No tax system is, or can be, static. There will always be trade-offs and difficult decisions; a desire for fairness may increase complexity; a desire for certainty may increase administrative complexity,” said Tyrie.

Even if a tax system was structured to promote growth and had the basic principles right, it would not succeed if taxpayers were faced with constant change, the committee noted. Indiscriminate use of taxation increases complexity and is counterproductive, so any social or economic basis for changes to the tax rules needed to be clearly explained to the public, the report noted.

“The practicability of a tax — ie the ease with which it can be collected, and the compliance burden imposed on the taxpayer — should be fully understood and explained at the time of the tax change. The accuracy of these assessments, quantified wherever possible, can then be compared with outcomes over time.”

The report added that as well as conducting impact analyses for new measures, they should be accompanied by dummy forms, to ensure that the practical issues of collection are properly addressed.

Some of the coalition government’s measures were studied during the committee hearings. The final report welcomed the formation of the Office of Tax Simplification, but noted that “higher quality work from HM Treasury and HM Revenue and Customs in this field should render such a permanent body unnecessary”. Once the OTS’s contributions have been assessed, it’s resourcing should be reviewed, the report suggested.

It also considered how a general anti-avoidance rule (GAAR) might be framed and implemented. The MPs could see advantages to a GAAR, but recognised that taxpayers needed a safe harbour to avoid undue uncertainties and recommended extensive consultation over any such move.

Turning to scrutiny over tax policy, the MPs addressed the sometimes shocking lack of oversight that takes place during the passage of voluminous Finance Bills. “Tax policy and legislation could be and should be better scrutinised,” the report noted.

As a result, the committee invited professional tax bodies to brief to provide briefings on proposed changes, so that the committee is able to comment at Budget time. “We continue to believe that the government should examine how consideration of the Finance Bill can be structured in order to facilitate engagement between experts and members, and allow members the time to debate both technical and politically controversial matters in Committee,” the report concluded. A specialised unit to provide MPs with technical support and analysis of tax policy could help with this, it added.

Following the moves towards better consultation from both the Labour and Coalition government, the committee recommends the following policy timetable:

  • A spring Budget in which policy proposals are announced for consultation
  • Draft Finance Bill clauses, published for comment in late summer
  • Finance Bill published in the autumn
  • Finance Act published around the end of the calendar year to take effect from the following April.

More certainty could be achieved by giving HMRC greater powers to interpret the law, and giving it power to make binding guidance along with a wider range of non-statutory concessions, the report noted.

“This would not be acceptable. HMRC's powers should be limited and should be subject to reasonable challenge in the courts. The public interest in ensuring that HMRC is not sole arbiter of the law overrides the interest in certainty.”

Professional tax bodies applauded the general tone of the findings. While suggesting that the committee's commetns about letting tax advisers play their part in improving tax law through a specialist advisory unit was in line with his institute's thinking, CIOT president Vincent Oratore had some reservations.

“The committee’s suggested timetable for a Finance Bill does truncate the time available for the vital stages of consulting on the principles of the change. Whilst the idea of completing the passing of the new legislation before the new tax year has its attractions, it cannot be at the expense of proper time to evaluate the design of the measure,” said Oratore.

Replies (4)

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By adiaz73888
15th Mar 2011 18:09

The Mirrlees Review

So, what will happen to the Mirrlees review:  Tax by Design?

Will it go to the waste of time and effort bin?

Is the review too much for MPs to digest and understand?

Oh yes, I forgot, the geniuses that inhabit HMRC and the Treasury have always done sterling work and will continue to grace us with their superior analysis and proposals.

Very depressing.

 

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By Anthony123
16th Mar 2011 08:21

Try looking at the report

You need only get as far as the first page (following the links above) to see it does refer to using Mirrlees.

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By adiaz73888
16th Mar 2011 15:02

Thanks

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By Simon Sweetman
18th Mar 2011 14:27

experts

Not all from the big firms, please 

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