Tax policies around the world have inadvertently fuelled the global financial crisis by encouraging companies to use debt rather than equity. This is one of the main findings of our policy paper called Competition or Co-ordination: Reassessing Tax in a Global Environment.
Should there be competition or co-ordination when it comes to taxation? G20 leaders have proposed improved co-ordination between national authorities as a key aspect of restoring confidence in global financial regulation.
But is there a need for similar action in the field of taxation? Finding a way forward is a difficult balancing act.
Global co-ordination is vital to make sure that tax is fair and transparent. While differences can be tolerated, ACCA’s view is that distortions and inconsistencies in tax systems need to be ironed out.
We make seven clear recommendations in the report. One of the most important is the need for governments to address national tax rules which distort behaviour, and reward one financing route over another. Care should be taken to avoid sudden changes, as this could require significant wholesale restructuring that could have unintended consequences.
And while leaps have been made during 2009 regarding the transparency of tax havens, there is still a need for tax havens to provide information freely to governments about nationals who use those jurisdictions. Large nations should not focus attention on tax havens as a distraction from the need to sort out their own finances.
The EU and other leading nations should act to resolve the remaining barriers to free trade, and continue to refrain from pressuring “flat-tax” countries to raise their tax rates in the name of “harmonisation”. National sovereignty in tax policy should be respected.
Governments and policy makers must take a holistic view of the place of green taxes in their tax systems. These taxes do have a role to play, but there should not be over reliance placed on them because, where they are successful, they diminish their own tax base. Global co-ordination is needed to maximise the impact of environmental taxation.
Consideration should also be given to independent tax committees playing a key role in the creation of tax policies. ACCA has cherished this idea for a number of years indeed it was first mentioned in Accountancy Age nearly ten years ago. The passing of time has still not made tax policy planning a transparent exercise.
The recommendations made in this report would go a long way to addressing some of the challenging current issues in the field of international tax. Tax policy is, and must remain, in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe.
Chas Roy-Chowdhury, head of taxation, ACCA
Tags: Tax-policy, G20
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