Moves for greater transparency and openness in taxation to restore the public’s trust in the system are not an end in themselves. What really matters is the kind of information we collect and its practical value, and whether or not it is acted upon when it does become available.
That is the view of Judith Freedman CBE, Pinsent Masons, Professor of taxation law at Oxford University, who gave this year’s CTA Address, held at the Institution of Civil Engineers, in Westminster. Being surrounded by the names and images of engineers may have inspired Professor Freedman to mix her philosophy on the nature of trust with practical solutions for HMRC.
Freedman argued: “If transparency is increased but justified trust is not, then the aim behind transparency, better tax collection…will not be served. All we will do by increasing transparency is lower tax morale and raise distrust in the general population in a downward spiral without improving tax collection or balance.”
A negative perception among the public can lead to a breakdown of trust, which may affect the tax take from normally compliant people. This may come about if people think the Government cannot handle the data from the Mossack Fonseca leaks, for instance. Freedman wondered if, despite ‘all the conferences and meetings and commissions and committees’, the current public debate on taxation was sufficiently well informed to be reliable and useful? The issues raised by the Panama papers, Luxleaks and other tax news stories were very different, she noted, and different approaches were needed to tackle the various problems. “But this can be lost in a general melange of suspicion and concern which frequently lumps all these matters together most unhelpfully,” she felt.
A key theme in tax today is that the concept of trust is under stress; the trust of taxpayers in governance, politics, courts and international organisations and each other, Freedman argued. Trust between small elites can end up fuelling mistrust among groups which are not involved and lead to conspiracy theories, she warned.
At Oxford University, Freedman, a CIOT Honorary Fellow, focuses on corporate and business taxation. CTAs, journalists, politicians and academics were among those attending this May 10 lecture.
How to restore trust? Freedman thought it was no coincidence that “calls for transparency and fairness… are reaching a crescendo when personal contact with HMRC is being lost”. Taxpayers required to deal with HMRC entirely through computers may have less and less trust in HMRC, she worried. HMRC needs well-trained resources or ‘we shall be unable to separate chaff from the wheat’, she said.
Freedman concluded by saying that she was not asking for blind trust but for a ‘reasonably placed trust in revenue authorities which needs certain kinds of transparency but [also] checks and balances’. This, she argued, could be achieved by better types of consultation, formally making HMRC a ministerial department, extending the benefits of personal contact with HMRC beyond large companies, and asking the National Audit Office to explore a random selection of settlements on an ongoing basis to assess their reasonableness and consistency with the law. This, she said, would be 'far preferable to special inquiries by non-experts emerging periodically as a response to particular events, because only a routine check will provide the reassurance necessary'.
Describing her ‘menu’ as modest rather than revolutionary, Freedman said a failure to restore trust in the revenue authority and tax system would result in a dangerous situation. “A tax system cannot be operated by public opinion; it needs consent, for it is impossible for it to function without a large measure of voluntary compliance.”
Hamant Verma, External Relations Officer at the Chartered Institute of Taxation