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Five year plan for Scottish tax reform

A lack of awareness of Scottish tax powers creates great scope for confusion, which is why ICAS is calling for clarity on devolved taxes and proposing that the Scottish government implement a five-year plan.

The proposals were set out today (26 September) by Justine Riccomini, Head of Taxation, ICAS at The Fraser of Allander Institute’s event, ‘Scotland’s Budget: 2017’.

ICAS was delighted to present at this event, which brought together leading experts from The Fraser of Allander Institute and key figures from business and policy to discuss the priorities for Scottish public spending and taxation.

Increasing public accountability

The most important source of Scottish tax revenues in 2018/19 is Scottish income tax. However, due to the nature of the partly devolved powers and the interaction of income tax with other UK taxes, there are constraints to be considered when setting the rates and bands.

At the same time, Land and Buildings Transaction Tax (LBTT) and Air Departure Tax (ADT), which collect relatively little tax, are prominent in Scottish tax messaging because they are fully within the control of the Scottish Parliament.

There is a need to explain these tax powers and their practical and administrative limitations, because clarity and public understanding are prerequisites to accountability.

Justine Riccomini recommended: “Accountability by Scottish politicians to their electorate can only come with clarity around tax raising policies and public understanding of tax.

“With a package of fully devolved, partially devolved, assigned and local taxes, many of which have had different implementation dates, it is questionable whether there is widespread understanding of ‘Scottish taxes’.”

“Measures around the forthcoming budget should seek to inform individuals and businesses about the tax powers, with clear explanations of the choices and why particular options are being put forward.”

A five-year plan for Scotland

The Scottish Parliament does have the power to make some radical changes to tax policy but the practical implications of this could be dramatic and unpredictable.

There are also challenges in adopting a fundamentally different approach, most of which result from comparison with tax in the rest of the UK.

The comparison may be a sense that, collectively, taxes are more expensive, or it may be in relation to individual taxes.

Justine Riccomini commented: “A key element of tax policy should be, where possible, to enhance and support the economy. At the very least, measures should not add to the complexity of doing business in Scotland and should not put Scottish businesses at a competitive disadvantage.”

“We need a five-year roadmap to set out the objectives of Scottish tax policy.

“This should set out policy objectives and provide clarity of purpose, tying in with the Scottish Fiscal Framework.”

Read more from the report.

This article was originally published by ICAS.