Sustainable thinking in Tax

I thought I out to explain what the logo for Green Tax is about.

We live in a short term world for all the political commitments to long term planning and exhortations about long term investment horizons. Tax is as much affected by this as any other policy area both in terms of business behaviour and tax policy – and this is understandable, the question is though should it be thus?

My involvement with environmental tax policy has made me question whether the short term focus of tax is either right or acceptable. Environmental tax policy has to be focused on long term environmental policy goals which seek to make fundamental changes in the economy to move to a low carbon economy, a process of change comparable in scope, with the Industrial and Energy revolutions of the late  18th and late 19th centuries. Environmental tax policy has to send the right long term price signals to underpin environmental policy, it is not about short term-ism but about a transition of fundamental change.

What does this tell us about tax and tax policy generically? Taxes are raised to pay for the public goods which politicians seek to fund, efficient tax policy should be directed at raising taxes in the best way to support sustainable economic growth as the engine which pays for public goods. A tax framework which follows these principles also needs to be seen to be fair, in order for taxpayers to accept the tax they pay – so there should be no free loaders – the system has to be comprehensive, and seen to be comprehensive.

So apart from environmental tax, what is sustainable thinking in tax? First, it has to be sustainable,  a long term policy framework which promotes sustainable economic growth.

That framework has to be understandable by policy makers and taxpayers.

Both the letter and the intention of tax law have to be readily understandable, governments and administrations have to articulate that clearly. This will mean politicians will need to spend more time on tax policy and legislation than they do at present.

Tax policy will need to be clear that the purpose of some taxes is to raise money and of others to change behaviour which may result in volatile revenues (environmental taxes are a good example).

What does sustainable thinking mean for taxpayers?
Where the intention of the law is clear, it means compliance (with the opportunity to lobby about the form of the law which best promotes sustainable economic growth).
Being transparent with tax authorities about the commercial structure of the taxpayer.
Alignment of the commercial and tax structure of the taxpayer.
Given the intention of the Beps project, it probably means not using hybrid mismatches.

Sustainable thinking in tax poses a big challenge to all tax professionals, but we do need to start thinking in this way.

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