Complexity is the real problem David Gauke should have addressed at Policy Exchange, not professional tax advisers

July 23, 2012 1:51 PM

Exchequer Secretary to the Treasury David Gauke MP this morning gave a speech to Policy Exchange on the Government’s efforts to tackle ‘aggressive’ tax avoidance. He started by declaring that the use of ISAs, pension plans, loss relief, capital allowances and other similar schemes do not constitute tax avoidance. People avoiding tax in these ways are merely engaging in ‘tax planning’, as intended by Parliament. Instead, tax avoidance was reserved for cases where a taxpayer is not only trying to avoid tax, but also doing so in a way that Parliament had not intended when passing tax laws.

Demanding that taxpayers don't just comply with thousands of complicated tax rules but also divine the intent of the MPs who voted for them and then also comply with that is absurd. Beyond that and the fanciful idea that the system can be based on people volunteering to pay more tax than they are legally required to, the Government is simply not addressing the fundamental problem.

Contrary to Mr Gauke’s belief that tax advisers are the ‘root cause’ of the tax avoidance problem, the true root cause is the tax system itself. It is just not fit for purpose. The tax code is broken and bursting at the seams under the weight of over 17,000 pages of rules. Quick fixes here and there to patch up the latest leak will not solve the underlying problem of Byzantine complexity which creates the conditions for so much avoidance in the first place. If all income were taxed equally and taxed once, in so many cases the opportunities for avoidance would simply not exist.

I asked Mr Gauke if he agreed with the TaxPayers’ Alliance that HMRC will always be on the back foot as long as our tax system is so monstrously complex and that the only long-term, sustainable solution to the problem of unfairness in the tax system and tax avoidance was a complete overhaul of the entire system along the lines of the 2020 Tax Commission’s proposals in The Single Income Tax. He agreed, pointing out that much of the complexity is a result of layer upon layer of rules designed to tackle other tax avoidance schemes in the past.

But agreement with the sentiment is not enough. The Government must start mapping out a transition to the lower, simpler taxes recommended in The Single Income Tax.Exchequer Secretary to the Treasury David Gauke MP this morning gave a speech to Policy Exchange on the Government’s efforts to tackle ‘aggressive’ tax avoidance. He started by declaring that the use of ISAs, pension plans, loss relief, capital allowances and other similar schemes do not constitute tax avoidance. People avoiding tax in these ways are merely engaging in ‘tax planning’, as intended by Parliament. Instead, tax avoidance was reserved for cases where a taxpayer is not only trying to avoid tax, but also doing so in a way that Parliament had not intended when passing tax laws.

Demanding that taxpayers don't just comply with thousands of complicated tax rules but also divine the intent of the MPs who voted for them and then also comply with that is absurd. Beyond that and the fanciful idea that the system can be based on people volunteering to pay more tax than they are legally required to, the Government is simply not addressing the fundamental problem.

Contrary to Mr Gauke’s belief that tax advisers are the ‘root cause’ of the tax avoidance problem, the true root cause is the tax system itself. It is just not fit for purpose. The tax code is broken and bursting at the seams under the weight of over 17,000 pages of rules. Quick fixes here and there to patch up the latest leak will not solve the underlying problem of Byzantine complexity which creates the conditions for so much avoidance in the first place. If all income were taxed equally and taxed once, in so many cases the opportunities for avoidance would simply not exist.

I asked Mr Gauke if he agreed with the TaxPayers’ Alliance that HMRC will always be on the back foot as long as our tax system is so monstrously complex and that the only long-term, sustainable solution to the problem of unfairness in the tax system and tax avoidance was a complete overhaul of the entire system along the lines of the 2020 Tax Commission’s proposals in The Single Income Tax. He agreed, pointing out that much of the complexity is a result of layer upon layer of rules designed to tackle other tax avoidance schemes in the past.

But agreement with the sentiment is not enough. The Government must start mapping out a transition to the lower, simpler taxes recommended in The Single Income Tax.

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