3. Tax and economy
"covering a range of ideas to improve tax collection, incentives positive behaviours and make taxation fairer, more transparent and better understood, and initiatives to develop new industries and employment opportunities, including through investments in research and development and innovation"
'Doing Politics Differently'
Summary of recommendations
Recommendations 23 – 32 are themed as 'Tax and economy'. These include proposals for ensuring that everyone – including large commercial bodies – pay their fair share of tax and to promote greater public understanding of the tax system. On the economy, the emphasis is on boosting science and technology investment and skills, supporting desirable business practices, and aiding Scotland's recovery from the impact of the Covid-19 pandemic, concentrating on small and medium size businesses.
There are three themes in the recommendations on tax:
- Encouraging desirable business practices through incentives in the tax system (recommendation 24)
- Effective enforcement of taxation (recommendations 23 and 26)
- Ensuring public understanding of tax and its importance (recommendations 25, 27 and 28)
The bulk of the tax system, including almost all business taxation (with the exception of non-domestic rates), remains reserved to the UK Government. The Scottish Government is therefore very restricted in the measures it can take to incentivise business behaviours in the ways proposed by the Assembly.
The Scottish Government supports devolving further tax powers to the Scottish Parliament, including taxes such as National Insurance and VAT, which would allow tax policy to be tailored as the Assembly proposes.
Most recently, the Scottish Government set out its position that the review of the arrangements for financing devolved government in Scotland (the "fiscal framework"), due to take place in early 2022, should consider these issues. However, while both governments have agreed to a broad scope for the review, there has been no agreement yet that further tax powers will be discussed. The exact scope of the review is to be jointly agreed by both governments in the coming months.
The Scottish Government has published a draft Framework for Tax, setting out the functions, principles and policy objectives that underpin how tax changes in Scotland are assessed and delivered. The draft Framework was informed by the work of the Citizens' Assembly:
[The draft Framework] embodies our ongoing commitment to, and vision for tax in Scotland; an approach that is underpinned by policy and delivery excellence, good practice, open government and transparency; and where tax policy is positioned to meet the challenges of today and tomorrow.
This is of fundamental importance to the people of Scotland, noting the vision for tax put forward by the Citizens' Assembly for Scotland:
Scotland should be a country where all taxes are simplified and made more proportionate so that everyone is taxed accordingly; taxation is transparent and understandable; measures are introduced to minimise tax avoidance: and companies are incentivised to adopt green values.
The draft Framework includes the principles and strategic objectives, and a programme of work for this Parliament. Echoing the recommendation of the Assembly on incentivising business, the strategic objectives include helping to deliver a sustainable and inclusive economic recovery and support new, good jobs, businesses and industries for the future.
The draft Framework also sets out engagement, transparency and public understanding as one of the six principles of good tax policy making:
Engagement: The public and businesses should understand the tax system and governments must be open and transparent about tax policies and their decision making, consulting widely. This is crucial for accountability and trust.
Responding to the recommendations of the Assembly is identified as one of the purposes of consulting on the draft Framework:
Be open and transparent about how we approach tax policy. Responding to the recommendations of the Citizens' Assembly, the Framework provides more information, in accessible language, on the purposes for collecting taxes; the principles that underpin our approach; our strategic objectives and our programme of work for this Parliament.
The recommendations of the Assembly on public understanding of tax and how it is spent have therefore directly informed the Scottish Government's approach to its tax policy, including developing Scotland's first Framework for Tax.
In addition, the Scottish Government is a member of the Open Government Partnership. As part of this, the government is working on ways to enhance fiscal transparency, while making the Scottish Budget more accessible to the general public, including the use of social media. Ahead of the 2021-22 Scottish Budget announcement, for example, content on Scotland's taxes was created for the Scottish Government's Instagram and Facebook accounts, using the 'Stories' feature on both platforms. The explainers on tax were designed to be clear and easy to understand. The Scottish Government is currently working with a range of partners to explore more accessible ways to communicate tax devolution and the links between taxes and public spending. For example, at the moment the government is working on an animated video project which involves representatives from; the Chartered Institute of Taxation, Fraser of Allander Institute, Scottish Parliament Education Centre, University of Edinburgh, and Glasgow Caledonian University.
As the majority of tax powers remain reserved, enforcement and compliance remains a core responsibility of HM Revenue and Customs. However, the Scottish Government believes that everyone should pay a fair share of tax and supports strong measures to tackle tax avoidance and evasion. The government's principles of good tax policy making include enforcement:
Anti-avoidance: Taxes form part of the fabric of society and we should all be proud of the contribution they make. The tax system should therefore prevent avoidance practices and governments and tax authorities should work proactively, and respond quickly to tackle them.
Revenue Scotland, the tax authority with responsibility for the collection and management of Scotland's fully devolved taxes, has a duty to protect the revenue and ensure that the correct amount of tax is collected. This is done through encouraging a culture of responsible taxpaying, where individuals and businesses pay their taxes as the Scottish Parliament intended. Revenue Scotland is an open and transparent organisation and is committed to making much of its data available.
Revenue Scotland is also committed to making it as easy as possible for taxpayers to understand and comply with their obligations and pay the right amount of tax, while at the same time working to detect and deter non-compliance. Revenue Scotland works closely with its stakeholders and has a programme of work to improve their processes and guidance to make them as accessible as possible. Revenue Scotland's approach to compliance has three key elements:
- Enabling – helping taxpayers comply with their tax obligations
- Assurance – helping taxpayers get to the right position
- Resolution – solving disputes, pursuing non-compliance and applying penalties where required.
A key feature of the Revenue Scotland and Tax Powers Act 2014 is the General Anti-Avoidance Rule (GAAR) which allows Revenue Scotland to take counteraction against artificial tax avoidance schemes. This makes it difficult for people to circumvent the requirement to pay tax. The Scottish GAAR is significantly wider than the corresponding UK General Anti-Abuse Rule which is based on a narrower test of 'abuse' rather than 'artificiality'.
The Citizens' Assembly also recommended that there be "a register of organisations which shows compliance with tax and employment measures" (recommendation 26). HMRC already publishes details of deliberate tax defaulters and large businesses have to publish their tax strategy each financial year.
The Assembly's recommendations on enforcement demonstrate clearly the importance to citizens of individuals and organisations bearing their fair share of taxation, and reinforce the government's principle: "Taxes form part of the fabric of society and we should all be proud of the contribution they make."
The Assembly's recommendations on the economy focus on science and technology investment and skills (recommendations 29 – 31), and aiding Scotland's recovery from the impact of the Covid-19 pandemic, concentrating on small and medium size businesses (recommendation 32).
The Programme for Government and the Covid Recovery Strategy set out the government's plans for supporting business and the economy to recover from the pandemic and shape the future of Scotland's economy. Both highlight the launch later this year of a 10-year National Strategy for Economic Transformation, overseen by a new Advisory Council to support Scotland's economic recovery. The strategy will be published alongside criteria for a new National Challenge Competition which will provide up to £50 million to the projects with the greatest potential to transform Scotland's economy.
The Programme for Government sets out other specific measures the Scottish Government is taking on supporting science and technology in Scotland's economy, and encouraging careers in these sectors. These include:
- actioning key recommendations from the review of the Scottish tech ecosystem, backed by an initial £7 million funding for the programme
- launching the Scottish Teachers Advancing Computing Science to share best practice in Computing Science across all schools; working across all sectors of education to change perceptions about STEM and challenge assumptions about gender and wider inequalities
- scaling up support for digital adoption, investing £100 million in digital support programmes over this Parliament
- working with innovative businesses to solve challenges faced by the public sector through CivTech operations, and funding delivery of innovative products and services across the public sector
- increasing funding for research and development to £100 million over this Parliament
- Working with the Enterprise and Skills Strategic Board and other stakeholders to develop a new innovation strategy and supporting Scotland to become a leading European space nation.
The Programme for Government also sets out plans for technologies to support a just transition to net zero, including the £62 million Energy Transition Fund and the £180 million Emerging Energy Technologies Fund.
The Assembly emphasises science and technology in its recommendations on the economy, reinforcing the government's plans for investment in these areas, including green technologies, and to support and foster innovation and interest in careers.
The Covid Recovery Strategy recognises that the efforts of businesses will be central to its success and sets out measures to simplify investment in skills and training, embed fair work so increasing productivity, and enhancing equality of opportunity for all to access and progress in work, as well as setting out detailed measures to support the creation of new jobs and to support those moving into employment.
The Programme for Government also sets out specific steps to put local business and communities at the heart of economic recovery for example maintaining the Small Business Bonus Scheme for the lifetime of the Parliament.
The measures set out in the Programme for Government reflect the recommendations of the Assembly, and the importance of small and medium size businesses to the recovery of local communities from the pandemic.
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