Devolved taxes: a policy framework
By Donald Drysdale for ICAS
4 April 2019
With the launch of a new consultation on how Scottish devolved-tax policies are developed and maintained, Donald Drysdale welcomes the opportunity for public engagement.
The consultation
The Scottish Government’s programme for 2018/19 committed to establishing a more strategic and structured approach to the wholly-devolved taxes.
Recognising this commitment, a consultation on a Devolved Taxes Policy Framework has now been launched with a view to establishing a new process by which changes to devolved taxes might be proposed, consulted on and assessed.
The existing wholly-devolved taxes, which are land and buildings transaction tax (LBTT) and Scottish landfill tax (SLfT), have been operating for four years. Two further taxes – air departure tax (ADT) and aggregates levy – are expected soon. Note that Scottish income tax is not wholly-devolved but is an intrinsic part of the UK income tax regime.
Domestic and international comparison
To help in bringing forward its proposals, the Scottish Government has considered examples of tax policy development in other English-speaking jurisdictions including the UK, Wales, the Republic of Ireland and New Zealand.
New Zealand's general tax policy process is often considered one of the most effective tax policy-making frameworks in the world, reliant as it is on open and collaborative relationships among officials, taxpayers, businesses and the tax profession.
Ireland’s annual tax policy conference brings together senior policy makers, stakeholders and academics from Ireland and abroad to discuss challenges in key areas of tax policy. Its pre-Budget submissions process also allows special-interest groups and members of the public to influence and inform tax policy.
Indicative tax cycle
The consultation document sets out suggestions for an annual or biennial tax cycle for Scotland. This is expounded by referring to specific illustrative dates – beginning with Phase 1 from May to December 2020.
In addition to specific groups which meet to discuss technical issues relating to each tax, it is proposed that the erstwhile Devolved Tax Collaborative be re-convened to promote wider discussion on tax policy issues. This forum would meet in May or June, bringing together representative bodies, networks, individuals and organisations with interests ranging across the tax system.
From June to November the Scottish Government would research, analyse and evaluate any possible tax changes. Then as part of the Scottish Budget in December, the Scottish Finance Secretary would announce the tax measures the Scottish Government would look to develop in the year ahead.
Phase 2 would begin with the launch in January 2021 of consultation on the proposed measures. Where thought appropriate, a single consultation would seek views collectively on a range of issues under consideration, rather than consulting on each tax or each proposal individually.
In some instances, such as wide-ranging reforms of the tax system, the Scottish Government would hold events to disseminate information and encourage participation in consultation. In others it might consult informally with subject-matter experts, or with professional bodies such as ICAS, particularly if proposals were of a technical nature.
From May to November the Scottish Government would develop more fully its policy and legislation, and might carry out further consultation on draft legislation, before announcing in December 2021 which developments were to proceed.
In assessing tax policies, the Scottish Government would ensure that its proposals were
consistent with the Scottish Approach to Taxation, while exploring changes and initiatives that would best support its wider economic, social and environmental policy objectives.
Phase 3, the Parliamentary process, would follow from January to March 2022, with the draft legislation being subject to scrutiny by the Finance and Constitution Committee and the Scottish Parliament. Subject to parliamentary approval and Royal Assent, the new or amended legislation would take effect on 1 April.
Phase 4, a post-implementation review, would be conducted to assess how well the policy had been developed and implemented, and whether it was achieving its aims. This might follow after (say) three years – that is, in April 2025 based on the illustrative dates used.
Accompanying documents
Proposals for new primary Scottish legislation are usually accompanied by a policy memorandum, a financial memorandum, an explanatory note, an equality impact assessment, a business and regulatory impact assessment and a data protection impact assessment.
This proliferation of documents seems somewhat over-bearing compared with the equivalent tax information and impact notes for new UK legislation. But Holyrood believes that the intentions of its legislation should be made abundantly clear. The Scottish Government is keen to know whether its accompanying documents are useful and informative.
Exceptions to consultation
Inevitably some tax changes must be made without advance consultation – for example, to tackle avoidance, correct anomalies, or respond to economic events. Furthermore, UK Budget measures may force Holyrood to legislate at short notice to protect revenues or prevent market distortions.
In such circumstances the Scottish Government will balance carefully the need for transparency and certainty with risks associated with forestalling.
Should there be a Scottish Finance Bill?
Following recommendations by the Budget Process Review Group, a new working group is to explore options for maintaining devolved taxes legislation, including whether there should be a periodic Scottish Finance Bill.
This has been suggested by many as a tidier alternative than bringing forward separate primary or secondary legislation to amend pre-existing statutes relating to LBTT and SLfT and the administrative powers contained in the Revenue Scotland and Tax Powers Act 2014.
The working group will include representatives from the Scottish Government, the Scottish Parliament, Revenue Scotland, the Scottish Fiscal Commission and the Office of Tax Simplification. ICAS, CIOT, CIPFA and the Law Society of Scotland will also be involved.
After due consideration by the Finance and Constitution Committee, the outcome of these deliberations is likely to emerge when the Scottish Budget for 2020/21 is presented at Holyrood in December 2019.
Getting involved
This important consultation invites responses by 6 June. If you have views which you’d like ICAS to take into account in responding, please email them to the ICAS tax team.
The Scottish Government is also holding three events to give stakeholders a chance to learn more about the consultation from officials, to participate in group discussions, and to provide feedback in advance of official responses.
The following links provide details of these events (and how to book places) in Glasgow on 16 April, Aberdeen on 18 April and Edinburgh on 23 April.
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