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Accountants have called on governments around the globe to move towards clearer and more productive tax systems through increased openness and transparency.
In a new policy paper entitled Tax Principles: From Adam Smith to Barack Obama, the Association of Chartered Certified Accountants (ACCA) has proposed 12 new tenets of taxation.
The international trade body claims that its document builds on 18th century economist Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, the pioneering account of economics at the dawn of the Industrial Revolution, which advocated an equal, certain, convenient and efficient system of taxation.
The paper’s recommendations include:
- Tax legislation should be as simple and straightforward as possible to understand and comply with.
- Tax law must be clear and certain, to ensure actions that may generate short-term financial advantage at the cost of long-term value are not supported.
- Tax systems should be efficient for governments so that they can secure revenues, prevent tax leakage and the development of black economies. Systems should also be efficient for taxpayers so they can comply with requirements, and for small businesses to reduce red tape.
- Globalisation of business means that countries need to ensure tax rates are competitive and regimes user-friendly. Governments must be wary, however, of inciting trade wars through drastic business tax cuts.
- The concept of ‘tax shifting’ - increasing levies on fossil fuels while reducing them for payroll, income or corporate taxes - should be promoted.
‘Central to our policy paper is the need for governments around the world to ensure their tax systems are truly accountable; that people understand why they are paying taxes,’ said the ACCA’s UK head of taxation, Chas Roy-Chowdhury.
‘Legislation also needs to be clear: no more stealth taxes, no more unexplained tax hikes,’ he added.
‘Regimes need to be user friendly for business and individuals alike. Volume of legislation needs to be kept to a minimum, too – especially to help over-burdened small businesses and entrepreneurs.
‘Behaviours can also be managed through taxation, and in our paper we talk about the need for governments to use tax policy as an instrument of positive change for sustainability.
‘Taxation is a dynamic economic and social tool, and must inevitably change in nature as national economies and business sectors develop. Green taxes, for example, were unheard of 20 years ago. Yet there are still some enduring maxims from Smith’s day whose relevance is undiminished,’ said Mr Roy-Chowdhury.
