What a 'progressive' tax system will mean for clients

Written by Kitty So

ACCOUNTANTS should carefully monitor for their clients likely changes in taxation promoting sustainability as international concern grows over inequality, ACCA’s Chas Roy-Chowdhury has said.

The comments come as the OECD released a new report advising taxation policy makers worldwide on how to promote sustainable growth by sensitively designing tax systems. The goal of tax, said the report, should not only promote economic growth, but ensure such growth is sustainable and more evenly distributed across society.

Accountants should be aware of likely changes such as those affecting property transactions; “in terms of just truly the tax, property taxes, I think, in the medium term are going to carry on going up. So I think you need to be aware of that,” says, Roy-Chowdhury.

“I think VAT, GST may well carry on going up… And environmental taxes are clearly something that governments are very keen on, they want to be seen as doing their bit for the environment… those kinds of areas will go up,” he notes.

He also expects that the global trend of corporate income tax decreasing will continue. For the UK, Roy-Chowdhury notes that accountants need to advise clients on potential taxation changes by the new government of prime minister Theresa May, prompted partly by Britain’s June 23 referendum vote to leave the European Union.

The heart of tax policy debate

The OECD’s Tax Design for Inclusive Economic Growth report, released July 20, and discussed at the G20 Tax Policy Symposium in Chengdu, China, July 23-24, may well be influential. The paper “emphasises the need to put equity at the heart of the tax policy debate – on an equal footing with growth and efficiency,” says David Bradbury, head of the OECD’s tax policy and statistics division.

He notes that while this means there is no “one-size fits all” optimal tax system or tax reform, the OECD does provide recommendations to help governments design their tax reforms. This includes advice that tax bases should be broadened such as by removing tax breaks that are not well-targeted at redistributive goals; countries should enhance the progressivity of their tax system beyond personal income tax and take into account the overall progressivity of the tax and benefit system when assessing tax systems; countries should aim at bringing informal taxpayers within the tax net; and policy-makers should consider the impact on gender and intergenerational equity of tax reform measures, the paper suggests.

“As far as the overall [OECD] goals [for redistribution] … we don’t necessarily disagree with it, but where that line is drawn is probably quite fine in terms of making sure this doesn’t disincentivise businesses and individuals to create wealth and jobs, and making the economy work and grow,” says Roy-Chowdhury.

“They [accountants] need to be aware of potential changes and actual changes in their own economy. Otherwise, you might be advising clients to do one thing, which then turns out to be in the longer term not to be the appropriate course of action.”