ACCA: Governments must change tax systems

The Association of Chartered Accountants (ACCA) has noted that governments' taxation methods will have to change if they want to achieve balanced economies.

In an international report, the ACCA said the challenges due to the covid19 pandemic, such as digitalisation, has introduced unprecedented external pressures on what governments can tax, and how much revenue they can generate from it.

It said, “As policymakers try to balance the needs of business and society against the economic upheaval, tax systems are going to have to change.

“Foundations for a sound tax system – simplicity, certainty and stability explain that like a tripos, a tax system’s strength and solidity come from three legs – simplicity, certainty and stability.”

The ACCA noted that simplicity involved economic growth that are 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. It should be kept to a minimum and tax law and tax administration should be simple, as society pays the price for complexity.

Additionally, it said with certainty, trying to resolve uncertainty was a poor second best to avoiding it in the first place. Limiting damage done by uncertainty should be a primary objective of tax system designers and agreeing to consistent treatments for cross-border transactions was key to confident international trades.

The ACCA said if uncertainty about tax was going to stand in the way of projects that would otherwise benefit society then the system 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, it said.

ACCA’s head of tax and business law Jason Piper, in a media release, said governments should look towards devising a tax system that benefits both the state and the people, since a poor one would only discourage business and investments.

He said, “Policymakers 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.”

ACCA said each jurisdiction should consider that its needs vary, and this should be a guide in designing policy frameworks.

Piper explained, “‘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."