Tax policy and the budget – a framework for tax: consultation analysis
Results of the consultation we launched on 31 August 2021 on Tax Policy and the Budget – a Framework for Tax. This sought views on our overarching approach to tax policy, through Scotland’s first Framework for Tax, and how we should use its devolved and local tax powers.
2. Framework for Tax
What are your views on the draft Framework for Tax?
Overall, respondents welcomed the publication of the draft Framework for Tax, with many commenting on how useful the document will be to communicate Scotland's tax policy development.
Audit Scotland stated: "The Framework represents a significant development of the draft policy framework for devolved taxes published in 2019. We recognise that many of the observations made in Audit Scotland's response to the consultation on that document have been addressed in the proposed Framework, and that it provides a more rounded basis for the government's overall approach to tax policy making."
The Chartered Institute of Taxation highlighted the Framework's "accessibility" as well as its ability to "communicate the functions, principles and policy objectives that underpin how tax changes in Scotland are assessed and delivered". Organisations such as The David Hume Institute also highlighted the Framework's "clear, accessible language" and noted that this is "critical to create more understanding of the important role tax plays in society" in Scotland.
2.1 Scotland's Approach to Taxation
Respondents broadly agreed with the principles included in Scotland's Approach to Taxation.
John Whiting welcomed the use of Adam Smith's principles in the Framework, "Adam Smith's principles are rightly still the core of Scotland's approach to taxation" and highlighted the importance of the certainty principle "so that businesses can plan and invest knowing how tax will impact them."
However, some stakeholders indicated that the anti-avoidance principle strikes a more negative tone than the other principles.
The Institute of Chartered Accountants of Scotland raised the risk of placing emphasis on tax avoidance in the framework "which could send a counterproductive message – that taxes are avoided by many taxpayers, with the implication that more compliant taxpayers could consider doing likewise."
Furthermore, the Chartered Institute of Taxation wrote (about the anti-avoidance principle)"it seems narrower and more negative than the other principles. A more positive and proactive framing of this would arguably align better with the other five principles. We think it might be better to replace this with a principle of effectiveness."
2.2 Strategic Objectives and Decision Making
Stakeholders found the inclusion of the Scottish Government's strategic objectives in the Framework for Tax useful, with The Law Society of Scotland stating "We consider that it is helpful that the Framework sets out the Scottish Government's strategic objectives in relation to tax and sets this against the wider Scottish Government operating environment."
Additionally, The David Hume Institute commented: "Having a coherent narrative that joins up tax policy with the National Performance Framework and Climate Change Plan helps businesses and investors plan for the medium term direction of travel."
Some stakeholders questioned why more specific Scottish Government strategic objectives were not embedded in the Framework for Tax. This can be seen, for example, in the Child Poverty Action Group's response: "Given the priority that the Scottish Government has given to tackling child poverty a key strategic objective should be to contribute to meeting the Scottish child poverty targets through providing resources to prevent and reduce poverty and through redistribution."
This was also noted by an individual respondent: "It is good to see the Climate Change Plan included…given the urgency of the need to tackle the climate crisis. But it is surprising to see so few references to it in the course of the Framework document."
Furthermore, Audit Scotland highlighted that "the Framework rightly recognises that there will be inherent tensions between how tax measures impact on the range of National Performance Framework outcomes", stating that "tax policy cycles should clearly describe and consider these trade-offs, including how these will be prioritised, balanced and managed over time. Critically, government should be clear on how it has applied its priorities in practice in relation to specific decisions alongside its overall approach."
The Scottish Human Rights Commission commented "It is disappointing not to see the government's human rights obligations explicitly reflected within the framework and its strategic objectives. The obligation to use maximum available resources sits at the heart of the Scottish principles and should, therefore, be explicitly referenced."
The Scottish Women's Budget Group also stated: "The framework sets out some decisions that have been made around income tax. It would be good to see a link to the documents and assessments that supported that decision making as a practical example of how impact assessments are used in tax policy decision making."
2.3 The Policy Cycle
Stakeholders welcomed the inclusion of a policy making cycle, and clarification about how it aligns with Scottish and UK Government budget milestones, in the Framework for Tax.
Audit Scotland mentioned their recent Planning for Outcomes report, and highlighted "the importance of showing how financial decisions map to the long-term outcomes for people in Scotland that the Scottish Government envisages. The Framework provides a good basis for doing this and it will be important that this is implemented in the manner envisaged."
Furthermore, an individual respondent commented that "Section 4 on the tax policy cycle is good", and suggested that the cycle should begin with "setting the objective of the tax change… not least to drive the evaluation stage (which is very good to see included)."
However, it was noted by The Law Society of Scotland that the introductory section of the Framework could be improved through the inclusion of a "brief summary of the key bodies involved in tax policy and administration… in the paper" to ensure that taxpayers are aware of each organisation's role and remit in the tax system.
2.4 Programme of Work and Engagement
There was wide agreement across stakeholders that engagement is a key process in the policy making cycle, both to encourage active participation from the public during consultation and increase overall understanding of the tax system.
In order to make the tax system transparent to a wider audience, The Royal Society of Edinburgh commented that "accessible guides should be created to explain how taxes are raised, and why they are implemented. This would aid public understanding of how a simplified tax system would not necessarily be fairer or more efficient."
The Scottish Women's Budget Group also highlighted the importance of inclusive engagement when developing tax policy: "Opportunities to move to inclusive and participatory processes for long-term tax decisions should be considered. Members of SWBG have highlighted the difficulty in finding out information on tax and the complex nature of documents proving to be a turn off. Clear transparent information about tax and the decisions that are made on tax policy are needed to improve the public understanding and approval for progressive tax measures."
The Scottish Community Development Centre suggested that there is an opportunity to learn from the Citizens Assembly for Scotland when engaging with stakeholders:"The principle on engagement needs to go further than understanding, openness and transparency, and consultation. It also has to be about informed dialogue and deliberation. This is based on the learning from the Citizens Assembly for Scotland which used informed dialogue and deliberation as a key method in engaging citizens about tax policy."
Additionally, Audit Scotland welcomed the focus on increased evidence gathering: "Effective evidence gathering is central to informing and scrutinising budget decisions. It is necessary to understand the nature and balance of underlying issues that the policy is aiming to address, such as socio-economic equality, wellbeing and the economy, and to analyse the impact a tax policy subsequently has."
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