By by Jason Piper, ACCA’s Senior Manager, Tax and Business Law
And it’s a question that that deserves careful consideration. After all, when the issue was first looked at in Pakistan, they found that most of the sitting MPs couldn’t publish their tax returns – not because of any legal prohibition, but simply because they hadn’t registered to pay tax at all, claiming instead not to earn enough to have to.
But if we were to ask elected officials and representatives to publish their tax returns (this question obviously doesn’t apply in Finland, Sweden, Norway or Pakistan, all of whom now publish everyone’s tax information), what would we hope to achieve? After all, it’s a good idea to understand why you’re doing something before you do it.
One argument for publication is where the tax burden itself is discretionary – that is, the taxpayer and tax officer agree the liability between them through a process of negotiation, rather than applying fixed laws. There’s a clear benefit to transparency and accountability if you publish in that situation, as a check on the tax authority’s exercise of its discretion.
But there are very few areas of tax law left with that sort of flexibility; the vast majority of systems now apply fixed treatments to particular sets of circumstances. Once you’ve earned money, or carried out given transactions, the tax office has to treat it in a particular way. What’s important is what the taxpayer has done, and of course that it gets reported accurately on the returns.
Obviously we want to be comfortable that public officials aren’t making the wrong payments under the law, whether through lack of care or knowledge, or deliberate dissimulation. There’s a legitimate need for society to be certain that the politicians who want to frame the laws which govern the tax system for everyone, and spend the money that gets contributed under that system, are shouldering their share of the legally imposed burden as the money goes in.
But that again should be the job of the tax office, and if we don’t think it’s well enough resourced to do that job then the answer must surely be to fund a properly enabled independent inspectorate to check on things. A crowdfunded approach to fault finding, where we have to rely on the public to spot problems because the tax office can’t, doesn’t sound particularly appealing, especially if it only applies to politicians. The benefit of a properly functioning tax inspectorate is that it works for the benefit of the whole population.
Of course, as an individual voter, a citizen may want to understand a little more about the motivations of the people in charge of their tax laws. We don’t want anyone involved who’s not prepared to abide by the law at all as it stands, but as a voter I might want to decide who I do want based on their approach to tax planning.
One way to establish that is where there is still an element of discretion in the system, which is how the taxpayer has decided to structure sometimes complex affairs – do they appear to have taken the path which minimises tax, or opted to pay more?
The problem with trying to work that out from a tax return is that it’s not really designed to tell you that.
There is a box to tick on the UK tax return if you’ve engaged in a notifiable tax avoidance scheme that’s registered with HMRC, and that would be a fairly clear indicator of a willingness to test the limits of the law. But what of a return which indicates a “middle of the road” tax planning structure? There’s no way you can tell from the return whether the taxpayer really wanted to do something more aggressive but couldn’t afford the fees, had to structure things that way for other commercial reasons, or didn’t fully appreciate that some people might consider the structure “aggressive” in any way, and wouldn’t have done it if they’d realised.
If the problem is that we don’t think people should be using complex arrangements which impact on their tax liability at all, then the answer is to simplify the system, not just shame politicians into steering clear. After all, there are far more celebrities, footballers, businessmen and city high-fliers who can still go ahead and use those structures, who wouldn’t necessarily have to publish details of their personal financial affairs.
And that highlights another aspect of publishing tax returns – they won’t necessarily give you the full picture. You won’t know about any non-taxable income, which doesn’t have to be declared – and someone who’s been paying into the various tax-exempt UK structures (TESSAs, PEPs, ISAs) for a long while could easily have well over £1m of capital earning away; if that’s not making £40-50k pa, tax free, then they’ll be having stern conversations with their IFA. Inheritances, gambling winnings – none of those would typically show up. Even the humble feed in tariff could account for up to £2k of tax free income.
Even more importantly, you won’t get a full picture of the household’s wealth. It’s easy to find examples of politician’s who’s spouses have independent careers which are more financially successful than their own (Tony Blair and Cherie Booth, or Nick Clegg and Miriam González Durántez are just two which spring to mind). We won’t necessarily be able to reconcile the politician’s lifestyle to their own tax return if they share wealth with a successful other half – but why should details of their spouse’s independent career be in the public eye?
And in any event, is it a politician’s absolute wealth, in isolation that’s relevant? Surely it’s as much their attitudes to wealth and tax (how they earned it, what they do with it) that matter – but you just won’t get that from a tax return, which after all was never designed to capture that sort of information. At best you’ll get an incomplete indication, and at worst it might be misleading – an innocent mistake, or unusual family circumstances, might present a picture that looks like an aggressive tax avoidance scheme. Releasing a tax return might work as a symbolic gesture, but it won’t necessarily on its own meet any of the legitimate goals that society, or the politician, might have around transparency and accountability.
If society thinks tax is important (and it should) then understanding properly how those who write the tax laws and spend the tax receipts approach those obligations is just as important.
We need a coherent approach to accountability and transparency around that, as well as a coherent approach to designing tax systems that are properly administered by well resourced authorities. Perhaps we could try judging politicians by how they’ve increased tax authority staff and funding levels, or striven for simplicity, certainty and stability in the tax systems we all rely on to deliver the funds to maintain society?