1. The Complexities of Tax Simplification: A Review of Progress in Australia, New Zealand, Turkey and the UK
Tamer Budak, Simon James, Adrian Sawyer and
Ian Wallschutzky
Conference of the Tax Research Network
University of Roehampton
4-5 September 2014

2. Overview Simplicity and complexity Simplification of tax systems
Simplifying tax law
Simplifying taxpayer communications
Simplifying tax administration
Longer term approaches
Focus on the Turkish Experience
A more systematic or strategic approach
An independent authority?

3. Plain English Golden Bull award for Revenue Letter
Your accountant is correct in his advice to you as in accordance with the Legislation contained at Section 134 Income & Corporation Taxes Acts it is directed that where an individual (the worker) renders or is under an obligation to render personal services to another person (the client) and is subject to or to the right of supervision, direction or control as to the manner in which he renders those services; and the worker is supplied to the client by or through a third person (the agency) and renders or is under an obligation to render those services under the terms of the contract between the worker and the agency and remuneration receivable under or in consequence of the contract would not, apart from Section 134 be chargeable to income tax under Schedule E then for all the purposes of the Income Taxes Acts the services which the worker renders or is under an obligation to render to the client under the contract shall be treated as if they were the duties of an office or employment held by the worker and all remuneration receivable under or in consequence of that contract shall be treated as emoluments of that office or employment and shall be assessable to income tax under Schedule E accordingly.

4. HM Revenue and Customs
Golden Bull award 2013: response to taxpayer’s
“The submission of this document has failed due to departmental specific business logic in the Body tag. Your submission contains an unrecognised namespace.”

5. Academic Glass House IFS:
“While the literature on nonclassical measurement error traditionally relies on the availability of an auxiliary dataset containing correctly measured observations, this paper establishes that the availability of instruments enables the identification of a large class of nonclassical nonlinear errors-in- variables models with continuously distributed variables.”

6. Advantages of Simplicity
Compliance and administrative costs.
May discourage economic activity.
Reduce taxpayers’ willingness to comply.
Uncertainty in making economic decisions.
Can generate unfairness.
Makes tax reform more difficult

7. What is Simplification?
Cooper suggests at least 7 Issues:
Predictability – A rule is easily and accurately understood.
Proportionality – the complexity of the rule is no more than needed to achieve its aim.
Consistency – rule deals with similar issues in the same way.
Compliance – the rule is easy and cheap to comply with.
Administration – easy to administer.
Co-ordination – rule fits with other rules.
Expression – the rule is simple if it is clearly expressed.

8. Simplification at Different levels
The choice of the tax base.
The design of the rules applied to that tax base.
The expression of those rules.
Administrative requirements imposed on taxpayers.

9. Dangers of a Simple Approach to Simplification
Necessary to take account of different levels and related issues.
Two broad areas:
Legal simplicity – comprehensibility of legislation and
Ease of determining liability
Most effort in Australia, NZ and UK has been on the former

10. Simplification of Tax Systems
Complex and changing socioeconomic environment
Multiple policy objectives
Fairness
Tax avoidance
Certainty

11. Simplifying Tax Law
Tries to fit the complexities of economic life - for example – income, four questions:
Is it income?
Whose income is it?
What kind of income is it?
When is it income?
All lead to complexity in law and administrative rulings.

12. Sir Ernest Gowers
Former Chairman of the UK Board of Inland Revenue and author of Complete Plain Words wrote:
“[The] sentence is constructed with that mathematical arrangement of words which lawyers adopt to make their meaning unambiguous. Worked out as one would work out an equation, the sentence serves its purpose; as literature it is balderdash.”

13. Tax Law Reviews
UK Tax Law Review Committee, started 1994, finished 2010
Australia TLIP, started 1993, unfinished
NZ Tax Rewrite Project & Rewrite Advisory Panel – started 1993, finished 2008
Some undoubted improvements but:
E.g. ‘Your assessable income includes income according to ordinary concepts, which is called ordinary income.’
Does not deal with underlying complexity.

14. Simplifying Taxpayer Communications
Not new – example from over 100 years ago.
Mr Lloyd George rejected this paper and demanded an explanation in words of one syllable. The Board [of Inland Revenue] sent a new paper – in words of one syllable; but it was reported that the subject matter remained as complicated as before and the monosyllables made it rather harder to understand.
However, plenty of scope e.g. US 1040EZ.

15. Simplifying Tax Administration
Complex tax system but made simple for most taxpayers e.g. by avoiding tax returns:
UK cumulative PAYE system
NZ majority of taxpayers also no longer required to lodge returns
Also development of pre-populated returns

16. Longer Term Approaches (1)
New Zealand’s Tax Working Group was established by VUW, with input from officials, academics - full support from government but was independent
Worked in conjunction with Generic Tax Policy Process – reviewed tax system structure and considered major policy issues
More successful than earlier Tax Review 2001 – led to major changes in NZ tax system
Was disbanded so not able to undertake further review unless re-established.

17. Longer Term Approaches (2)
UK Office for Tax Simplification - set up in 2010 after TLRP. Part of UK Treasury not independent
Tackled minor tax policy issues, but with limited shelf life, has left untouched major policy issues
Very under resourced - highlighted by Parliamentary inquiry into tax avoidance & role of large CA firms
Complexity Index arguably most significant contribution, leading to debate with academics & tax officials
Unlikely to deliver effective simplification.

18. Turkey`s simplification initiatives
In Turkey, one of the main aims of the Ministry of Finance (MF) is to increase voluntary tax compliance and also to reduce tax complexity
The MF Annual Report 2013, says that `current tax laws will be reviewed for simplification`, but this aim has been declared for more than 10 years in every annual report.
Interestingly, currently there are no tax law projects or committees related to reviews and simplification issues

19. In 2013 the Turkish government drafted a Unified Income Tax Law with the main aims of improving voluntary compliance and simplification
Despite all of these, there are also some practices about simplification which have been applied by the MF for more than 10 years. For instance,
The Tax Communication Centre,
Pre-filled e-tax return

20. Simplifying Taxpayer Communications
The Tax Communication Centre (TCC) was established in 2007.
The TCC has been focused on solution regarding the reason for calling in the first call.
This graphic show that the ratio of first step solution in the TCC during 2008 to 2013 periods.

21. “It’s not worth the Risk”
Simplifying Tax Administration (Pre-filling e-returns)
The MF announced a pre-filled e-tax return as a new application for rental income in 2012.
The MF ran a nationwide multimedia publicity campaign to encourage the use of the prefilled e-tax forms by conveying to the public their ease and simplicity.
The campaign advertisement message is:
“It’s not worth the Risk”

22. At the same time, some taxpayers who have reached the age of 60 or are disabled, call the TCC and some officials visit them in their home and they fill in the tax return together.
Following the campaign, around 1.2 million people submitted their 2011 income tax return online using the pre-filled system.
The rate of increase in the total number of rental income taxpayers was approximately 33% for only first year application.

23. Small Businesses Very important part of the economy.
May lack expertise and other resources to cope with complexity. However: special provisions may be possible e.g.
Simplified tax reporting requirements for small businesses.

24. Strategy for Simplification
Evaluate the importance of different aims of tax policy, potentially prioritising these aims
Incorporate simplification into the tax policy process itself rather than leave outside or as an add on
Develop a ‘simplification culture’
Monitor and review progress on a regular basis.

25. Improvements to Tax Reform
Simplification attempts have often failed to take sufficient account of wider issues and therefore failed to achieve much success. The three tax rewrite projects are an example
Simplification should be part of general considerations in tax policy to allow appropriate trade-offs between simplicity and other goals
Every jurisdiction may have different views on the relative importance of the key principles for a good tax system.

26. A Proposal: Overseeing Tax Reform
A body with a permanent role to:
Examine the workings of the tax system
Including changes in the economic and social environment both nationally and internationally.
Could anticipate necessary changes
Assess other proposals for reform.

27. Conclusions Need to take account of the reasons for complexity
Need a process to weigh up the trade-offs between simplicity and other aims etc
Need a permanent and comprehensive approach to taxes and tax reform.

28. Comments Very Welcome