Over the past two decades, international tax reform has largely focused on the shares of large multinational corporations, corporate taxation, and the use of tax havens by these corporations and the world’s wealthiest people. The aim was appropriate – it is now hard to remember how massive the misuse of offshore was at the turn of the century.
However, significant progress has been made in addressing these issues. While some issues remain, the time has come to consider the issues that are expected to dominate national and international tax agendas for the next decade or two.
The Washington, D.C.-based Global Initiative for Financial Transparency (GIFT), which is supported by the International Monetary Fund, the World Bank, the Organization for Economic Co-operation and Development, and several governments and other organizations, has begun this process. reflection. Their proposed new program changes the focus of attention within tax reform. While personal and corporate tax compliance is important, taxation is primarily a government business. Consequently, it is to a government’s management of its tax system that GIFT now suggests paying attention.
The result is the new GIFT Transparency Principles for Tax Policy and Administrationwhich I co-wrote with them and my colleague from the University of Sheffield, Professor Andrew Baker.
The principles are based on the implication that taxation is one of the fundamental principles of the social contract between governments and those they govern. In particular, the principles suggest that taxation is about a much wider range of issues than just raising revenue. The principles note that taxation plays a vital role in influencing social and economic behavior and outcomes in any society. Therefore, transparency in and about tax systems is essential for corporations to be able to hold policy makers accountable and make informed judgments about whether their tax system is working in the public interest.
The Principles are built around 14 standards that aim to help policy makers and a range of civil society actors make more informed tax choices and better understand the social and public benefits of their tax system. To do this, the principles suggest that any tax system can be enjoyed gradually. These assessment methods start at a basic level and suggest that a government should have a published tax strategy and should publish an annual budget supported by detailed data on the expected basis for the collection of each tax.
At this basic level, all taxpayers should have free access to tax law and the right to privacy in their tax affairs.
Intermediate goals of tax transparency include a government publishing detailed accounts for its tax authority so that results can be properly measured against performance expectations. At an advanced level, this process should be supported by a tax gap analysis. Ambitiously, the principles propose the use of tax impact analysis (a technique developed by Baker and myself) to suggest ways to improve the performance of a tax system. No country has yet reached this ambitious level.
The principles have been designed to be consistent with the rating systems used by international bodies such as the OECD and the World Bank. They seek to find positive elements within a tax system that can be measured as a basis for progress, which is why baseline achievements are considered important.
The principles outline progress towards tax transparency. GIFT sees this as essential as tax systems become increasingly powerful instruments to address pressing challenges, such as responding to climate change, mitigating inequality and maintaining vital public services. The principles also fill a major gap in the global architecture of budget transparency rules. As part of this process, it is hoped that they will help promote informed public debate on tax reforms that will enable tax systems to generate needed revenue more fairly and efficiently.
Implicit in the belief that these debates matter is another assumption underlying the principles: that democracy is built on people’s understanding of the tax system. The more people understand about taxation, the more likely they are to pay the taxes they owe. Tax transparency can thus lead to stronger and better political systems.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Richard Murphy is Professor of Accountancy Practice at Sheffield University Management School, Chartered Accountant and Economic Justice Campaigner.
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