Can we do tax differently in Scotland, committee asks?

Is there scope for a fundamentally different approach to taxation in Scotland? That is one of the questions posed by the Scottish Parliament's Finance Committee in a call for evidence as it undertakes an inquiry into a Scottish approach to taxation.

The move follows the devolution of wide taxation powers via the Scotland Acts 2012 and 2016. Reflecting the shift in the nature of devolved public finance from spending to raising revenue and the principles that should govern the latter, the MSPs are seeking a debate on the approach which should be followed in developing a Scottish approach to taxation.

Four principles have been set out by the Scottish Government as underpinning its approach – that taxation policy should:

• be proportionate to the ability to pay;
• provide certainty to the taxpayer;
• provide convenience/ease of payment; and
• be efficient.

The committee would like views on what should be the guiding principles, and in particular on how the Government’s four principles to underpin Scottish taxation policy can best be achieved, and how the current taxation regime and proposals for newly devolved taxes match up against these four principles.

It also asks whether future tax changes should be ring-fenced, and if so, how; to what extent do potential behavioural responses limit options for tax changes in Scotland; and to what extent do administrative mechanisms, via HMRC or otherwise, limit the scope for a different tax system in Scotland to develop?

Committee convener Mike Russell MSP also believes that a "step change" is needed in the budget scrutiny process if the Parliament is to have proper oversight of the Government’s spending plans and new tax raising powers. He has asked Parliament officials to bring forward proposals for a fundamental review of the budget process, that will ensure the Parliament and the Finance Committee have access to adequate and timely information on tax forecasting and other key economic data.

Mr Russell explained: “One of the main consequences of the new powers is that the Scottish Government’s budget is now potentially subject to much greater uncertainty and volatility than previously when the block grant was relatively fixed.

“For the first time under devolution, there will be heavy reliance on tax forecasting in the budget process. These forecasts are due to be prepared by the independent Scottish Fiscal Commission which will have a critical role in supporting the committee’s budget scrutiny.

“It is also essential that the Parliament ensures there is now a balance between effective scrutiny of the new tax powers and the Government’s spending decisions. The budget process was designed when the parliament had relatively few tax powers and the committee is therefore in agreement that there needs to be a Parliament-led review."

Click here to view the call for evidence. The closing date for responses is Friday 30 September 2016.

A further review is taking place of the first year of the land and buildings transaction tax, with a closing date of Friday 26 August. Click here to view the call for evidence.