Written evidence submitted by Christian
Aid
1. Introduction
1.1 Christian Aid is a Christian organisation
that insists the world can and must be swiftly changed to one
where everyone can live a full life, free from poverty. We work
globally in over 40 countries for profound change that eradicates
the causes of poverty, striving to achieve equality, dignity and
freedom for all, regardless of faith or nationality. We are part
of a wider movement for social justice. We provide urgent, practical
and effective assistance where need is great, tackling the effects
of poverty as well as its root causes.
1.2 We welcome the opportunity to provide written
evidence to the Treasury Select Committee on the Fundamental Principles
of Tax Policy. We are happy to provide further written or oral
evidence on any of the subjects covered in this submission via
Melanie Ward, Senior UK Political Advisor on meward@christian-aid.org
or 020 7523 2467.
2. Christian Aid's perspective on the principles
of tax policy
2.1 Christian Aid's interest in tax policy lies
in the role of taxation in strengthening good governance, economic
development and provision of essential services in developing
countries. There is a growing recognition within the development
debates that developing countries need to move "beyond aid"
to finance their own development.
2.2 Too much dependency upon development assistance
is not sustainable, particularly as aid comes under increasing
pressure in donor countries. In addition, over-dependence on aid
can result in problems such as lower incentives to improve tax
collection and a tendency of donors to condition aid upon a country's
acceptance of their policy "advice". This potentially
undermines the sovereignty of states and governments' accountability
to their citizens. A further problem is that if aid is channelled
towards projects that would otherwise have been paid for by tax
revenues, those tax revenues may be diverted to corruption.
2.3 Tax systems should be progressive, transparent,
predictable and efficient. In doing so they should provide essential
revenue for public services and infrastructure without undermining
economic development and innovation. However, in developed and
developing countries, the situation is quite different.
2.4 In considering the fundamentals of tax policy
we must consider how countries like the UK can assist developing
countries in effectively raising revenue. In addition, we must
consider if and how the UK and international tax regimes either
support or undermine the ability of developing countries to raise
revenue. This is in the long-term interest of both developing
countries and the UK, as these countries may be future trading
partners. Aid is vitally important and the government's decision
to increase the aid budget to 0.7%of GNI by 2013 is undoubtedly
the right one—but it is clearly in the UK's own long-term
economic interest to move towards a situation where developing
countries are no longer dependent on aid.
3. What are the key principles which should
underlie tax policy?
3.1 Christian Aid sees four primary objectives
to taxation. Revenue: to deliver the services citizens need; redistribution:
to address poverty and inequality; representation: building accountability
of governments to citizens; and re-pricing: limiting harmful behaviours
and incentivising "good" behaviours.
3.1.1 Revenue: tax is a vital source of revenue
for most governments, enabling them to fund essential services
and infrastructure for their citizens. Of course, revenues will
not automatically be used for such social goods. But when governments
get revenue from tax, citizens are in a far stronger position
to exert pressure that it be spent on the services to which they
are entitled.
3.1.2 Redistribution: the provision of services
discussed in section 2 above is one way of addressing poverty
and inequality through taxation—as it is the poor that tend
to depend more on key services such as publicly funded health
and education. In reality tax systems the world over are often
regressive. This is even more likely to be the case in many Southern
countries which tend to have particularly low levels of taxation
on income and an over-reliance on consumption taxes.
3.1.3 Representation: a broad tax base, and the
public debate that accompanies this, creates a "social contract"
between members of society who are paying taxes and voting for
political parties, and officials who are expected to raise and
spend those revenues in a manner that benefits the constituents
who elected the government. Taxes make government more immediate
and visible, and ultimately more accountable, thus challenging
corruption.
3.2 Taxes can be used to ensure that all social
costs and benefits of production or consumption of a particular
good are reflected in the market price. The design of a tax system
can contribute to the achievement of other social goods by making
it costly to engage in actions considered socially undesirable,
or by incentivising behaviour that is considered beneficial to
society. For example, in the context of climate change, it is
clear that market mechanisms do not price our consumption and
production in a way that considers the impact on future generations.
4. How can tax policy best support growth?
4.1 In fulfilling the objectives referred to
in section 3, tax systems should encourage rather than hinder
innovation and economic development. As such, tax codes should
be simple, transparent and clearly linked to government expenditures.
4.2 Tax policy should strengthen the efficient
operation of markets through financial transparency. Public revenue
figures and expenditures should be published in a regular and
timely manner.
4.3 Any contracts agreed between governments
and business granting tax concessions should be transparent. This
is particularly important with regard to the extractives sector.
Such contracts should be published in advance, and be open to
scrutiny in parliament.
4.4 The tax positions of companies should be
clear and transparent. Companies should publish in their annual
accounts details of their profits, tax payments and other financial
details on a country-by-country basis as proposed by the Taskforce
on Financial Integrity and Economic Development.[40]
Such transparency would assist in making governments more transparent
for the revenues which they receive and would expose potentially
abusive behaviour on behalf of companies in relation to trade-related
tax evasion and aggressive tax avoidance. International bodies
such as the OECD recognise that this abuse is likely to cost developing
countries more than they receive in aid. Christian Aid estimates
this to be around $160 billion annually. Given the sums of money
involved, taking an international lead to resolve this issue would
dovetail with government concerns around value for money for UK
taxpayers as in the long term it would help move away from aid
dependency.
4.5 The UK is uniquely placed to negotiate such
a standard within the G20, EU and other fora, following the lead
of the US, which recently implemented a similar standard for US
listed companies operating in the extractives sector under the
Wall Street Reform and Consumer Protection Act (Dodd-Frank provision).
4.6 In addition, international tax cooperation
is crucial. Financial secrecy in Offshore Financial Centres can
result in significant outflows of capital and tax evasion and
avoidance in developed and developing countries alike. The UK
took a lead on this issue at the G20 London Summit in 2009, but
despite significant progress, the commitment to help developing
countries benefit from a new co-operative tax environment is yet
to be fulfilled. The UK is therefore well placed to take a lead
in challenging financial secrecy through pursuing a new multilateral
agreement for exchange of tax information (including a provision
for automatic exchange) at future G20 meetings, starting with
the forthcoming summit in France in November 2011—this should
be a priority goal for the UK government.
5. To what extent should the tax system be
structured to support other specific policy goals?
5.1 As referred to in section 3, Christian Aid
sees a broad range of benefits to the tax system. It is recognised
that effective revenue mobilisation is the primary objective of
tax policy. However, there should always be a consideration of
how this objective interacts with the objectives of equity, governance
and re-pricing.
6. How much account should be taken of the
ease and efficiency with which a particular tax can be imposed
and collected?
6.1 Complexity in a tax system leaves the system
open to abuse and can act as a disincentive for companies and
individuals to comply. As such tax systems should be simple, whilst
still ensuring progressivity in both indirect and direct taxes.
7. Are there aspects of the current tax system
which are particularly distorting?
7.1 Christian Aid has no comments on this question.
January 2011
40 http://www.financialtaskforce.org/wp-content/uploads/2009/06/Final_CbyC_Report_Published.pdf Back
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