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Tax Transparency Principles Aim to Inform Public on Tax Systems

Sept. 28, 2022, 8:45 AM

For the last two decades, international tax reform largely has focused on the actions of large multinational corporations, corporation tax, and the use of tax havens by those companies and the world’s wealthiest people. The focus was appropriate—it is now hard to recall how massive the abusive use of offshore was at the turn of the century.

However, there has now been significant progress in tackling these issues. While some issues remain, the time has come to consider the issues that should dominate both the national and international tax agendas for the next decade or two.

The Washington, D.C.-based Global Initiative for Financial Transparency (GIFT)—which is backed by the International Monetary Fund, World Bank, the Organization for Economic Cooperation and Development, and several governments and other organizations—has begun that thinking process. Their new proposed agenda changes the focus of attention within tax reform. Although the tax compliance of individuals and companies is significant, tax is essentially the business of government. As a result, it is to a government’s management of its tax system that GIFT now suggests that attention should be given.

The result is GIFT’s new Transparency Principles for Tax Policy and Administration, which I have co-written with them and my University of Sheffield colleague Professor Andrew Baker.

The principles are based on the implication that tax is one of the core tenets of the social contract between governments and those they govern. In particular, the principles suggest that tax is about a much broader range of issues than simple revenue raising. The principles note that tax plays a vital role in influencing social and economic behavior and outcomes in any society. As a result, transparency in and about tax systems is essential for societies to be able to hold decision-makers accountable and to reach informed judgments on whether their tax system is working in the public interest.

The principles are built around 14 standards that aim to help policymakers and a range of civil society stakeholders make more informed choices on tax and achieve a greater understanding of the social and public benefits of their tax system. To do so, the principles suggest that any tax system can be appraised progressively. These appraisal methods start at a basic level and suggest that a government should have a published tax strategy and should publish an annual budget supported by detailed data on the expected basis for collecting each tax.

At this basic level, all taxpayers should be able to access tax law without charge and have a right to confidentiality in their tax affairs.

Intermediate goals for tax transparency include the publication by a government of detailed accounts for its tax authority so that outcomes can be properly measured against expectations of performance. At an advanced level, this process should be supported by tax gap analysis. Aspirationally, the principles propose the use of tax spillover analyses (a technique developed by Baker and me) to suggest ways in which the performance of a tax system might be improved. No country has yet reached this aspirational level.

The principles have been designed to be consistent with the appraisal systems used by international agencies such as the OECD and World Bank. They seek to find positives within a tax system that can be measured as a basis for progress, which is why basic achievements are considered significant.

The principles highlight the progression toward tax transparency. GIFT considers this essential when tax systems are becoming ever more powerful instruments for dealing with pressing challenges, such as responding to climate change, mitigating inequality, and maintaining vital public services. The principles also fill a major gap in the global architecture of fiscal transparency rules. In the process, it is hoped that they will help to promote informed public debates on tax reforms that will enable tax systems to raise needed revenue more equitably and efficiently.

Implicit in the belief that those debates are important is another underpinning assumption of the principles: that democracy relies on people understanding the tax system. The more that people understand tax, the more likely will pay the taxes that they owe. Tax transparency can deliver stronger, better political systems as a result.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Richard Murphy is a professor of accounting practice at Sheffield University Management School, a chartered accountant, and an economic justice campaigner.

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