SBC4- SELF-ETHICAL TAX RAISING IN SMALL STATES
and monitor whilst having a role in ensuring that the revenue system generates the resources needed to achieve government objectives. Social objectives are better achieved by improving the “progressivity of spending” that is targeting poverty programmes to the most vulnerable. Increasing revenue mobilization through tax administration and tax policy reforms is required to finance poverty reduction, infrastructure development, supporting growth and maintaining fiscal buffers. Sustained revenue gains are achievable through broadening the tax base while reducing tax exemptions, closing loopholes and improving compliance. This ensures everyone’s contributions, but within limits. These points that canbe emphasized by Parliaments when deliberating tax policy. It is critical to analyze and examine the tax base before introducing new taxes. Based on some recent work done by the IMF for Africa, combined tax policy and administration reforms raised an average of two to four per cent of its GDP.
The priorities for tax administration reform are:
broaden the tax base; • Combat tax avoidance and evasion; • Implement robust, simple and effective legislation; • Maintain strong political will and commitment; and • Improve revenue administration together with supportive, efficient, fair and effective tax policies.
Keeping it simple
Mr Axel Schimmelpfenning, IMF, speaking in relation to domestic taxation within small states, said that although capacity and economies of scale may be an issue, fundamentally, tax policy should not be much different as compared with larger
states. He acknowledged that operationalizing the concept on ethical tax raising and implementation can be difficult, and therefore a progressive tax system makes sense. However he cautioned that trying to achieve too much with the tax system could potentially backfire. To achieve social objectives via taxes or spending, countries need a sufficient and stable revenue base to finance social and development spending. A tax system with legitimacy and revenue productivity is the foundation of a sustainable revenue base. Parliaments can influence tax policy to push for simplicity and universal coverage, thus making it easy to interpret
• Governance: Ensured clear legal and regulatory frameworks, minimiz- ing rent-seeking opportunities; • Risk management: Allocated administrative interventions where risks to revenues are greatest; and exploited withholding and third party information as much as possible; and • Taxpayer segmentation: Strength- en Large Taxpayer Units (LTUs) to tailor services to distinct groups such as tax offices targeted to specific high-contributing taxpayers; and include units for specialized sectors.
Speaking on priorities for tax policy reform, Mr Schimmelpfenning advised eliminating or minimizing tax exemptions as they are not always consistent. Instead he suggested implementing a broad-based single rate such as Value-Added-Tax (VAT), corporate Income tax, a single lower rate on basic food, property tax; and target excises to address socials concerns.
In conclusion, he emphasized on keeping it simple as a
recommendation given that a simple tax system is easy to implement and manage. Simplicity ensures a system that is understood and accepted, made compliance and enforcement easy, and when combined with broad-basing ensures that everybody contributes. A simple tax system also reduces the rent-seeking opportunities.
For Parliaments to be an
effective force in shaping tax policy, capacity through dedicated research staff, commissioning analyses from independent think-tanks, and drawing resources from regional and international organizations is essential.
Both Deputy Jonathan Le Tocq, Guernsey, and Hon. Lois Moorcroft, MLA, Yukon, agreed with Mr Schimmelpfennig that small states are not too different from large states and that sophisticated and complicated tax forms can be a deterrent of participation.
Recommendations from the Workshop
Recommendation One: “A simple tax system is easiest to implement and manage and creates fewer opportunities for rent-seeking, while social needs are best addressed through targeted benefits.” While the recommendation was already adopted, clarity was sought in relation to the term ‘rent-seeking’. This was explained as being the practice of investors to opt for countries where tax laws were relaxed with low or affordable rates.
Recommendation Two: “Commonwealth Countries should cooperate more with small states to ensure technical and legislative capacity exists for technical tax raising in small jurisdictions.” Recommendation Three: “Small States should pool information and resources to ensure that international standards and norms of ethical tax raising can be achieved.”
The three recommendations were endorsed without amendments.
The Parliamentarian | 2013: Issue Four | 327
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