Scottish Finance Bill gains traction as MSPs scrutinise aggregates tax bill

Scrutiny of the proposed Scottish Aggregates Tax (SAT) is being undertaken by Holyrood’s Finance and Public Administration Committee, who heard from representatives of CIOT, ICAS and the Law Society of Scotland, before discussing the plans further with officials from Revenue Scotland.

Representing the professional bodies were:

• Eric Brown (CIOT)
• Isobel d’Inverno (Law Society of Scotland)
• Justine Riccomini (ICAS)

Elaine Lorimer, Revenue Scotland’s Chief Executive, also took part in later proceedings, alongside colleagues involved in preparations for the new tax. This Tuesday, public finance minister Tom Arthur gave evidence to MSPs on the Bill.

Scottish Finance Bill

MSPs asked about the potential for a Scottish Finance Bill as a way of improving scrutiny and keeping tax legislation up to date. Eric Brown told John Mason (SNP) that a Finance Bill was ‘preferable’ to secondary legislation as a way of setting tax rates and said to Michelle Thomson (SNP) that it would be a better way of making changes to legislation that lead to direct changes for taxpayers.

Isobel d’Inverno said there was a ‘growing need’ for a Scottish Finance Bill that would make it easier for changes to be made to tax legislation. On the reasons for this, she said: “[o]ne thing that we have found difficult with the devolved taxes is the time that it takes to get anything changed when an issue has been identified”. Justine Riccomini said she felt ‘quite strongly’ about the need for a bill, because it “would be so much more transparent” and could help contribute towards better understanding of the Scottish taxes.

John Mason (SNP) asked why awareness of Scottish taxes was low, suggesting: “Is it the media’s fault, because they just ignore Scotland?”.

Justine Riccomini said that the professional bodies had “regular discussions” with government “about how to get messages across”. She suggested that HMRC’s ‘Tax Facts’ campaign was worth considering, adding: “The Government could produce them and roll them out in schools, colleges and universities for students who are about to enter the workplace for the first time, so that they understand that they will have a tax code and so on.”

In later evidence, Elaine Lorimer suggested that such a Finance Bill could “keep our legislation up to date not just from a technical perspective” and “keep the substantive part – the substance – of our tax legislation up to date”.

She continued: “Without a regular vehicle for doing that, we run the risk of our tax legislation falling behind or our ability to ensure proper compliance and fairness across the system being brought into doubt.”

Lorimer also suggested that such a Bill might not be needed annually but that “we certainly need such a vehicle… The longer we administer our taxes, the longer the list of issues that we want to be changed will become”.

In his evidence to parliament earlier this week, Tom Arthur told MSPs that he supported the principle of a Scottish Finance Bill but that this would represent a significant piece of work requiring reform of the parliament’s budget processes. He suggested that it should be the committee that instigates the work.

Offsetting and taxpayer protections

Witnesses were asked by the committee’s convener Kenneth Gibson (SNP) about provisions in the Bill that allow an offsetting of tax debts against credits across the devolved taxes. Witnesses were lukewarm on the proposals, describing them as ‘unnecessary’ and ‘disproportionate’.

Justine Ricommini added that Revenue Scotland was “relatively successful at collecting the two devolved taxes that it currently administers and collects, so I am not sure why it needs this piece of legislation”. Eric Brown suggested there was no need for the measure as the Scottish common law of set-off had previously been considered ‘perfectly adequate’.

Isobel d’Inverno told MSPs of the need for better taxpayer protection, saying that “the bill seems to put powerful provisions in the hands of Revenue Scotland, with no protections for the taxpayer.”

Elaine Lorimer assured the committee that Revenue Scotland would use the offsetting provisions in a proportionate manner.

Compliance

Eric Brown suggested that Revenue Scotland would need powers to be able to investigate aggregate suppliers in Scotland so that the appropriate aggregates levy is paid in the appropriate jurisdiction. Justine Ricommini told MSPs that “the Scottish Environmental Protection Agency (SEPA), Revenue Scotland and the Scottish Government needed “to be a bit more cohesive in their overall policing of operators so that they can do more enforcement and more day-to-day policing”.

Gibson also asked witnesses about the scale of unregistered aggregates activity in Scotland. d’Inverno said that the creation of the new tax provided ‘a great opportunity’ to look at how enforcement is undertaken.

Elaine Lorimer acknowledged that the geographical spread and size of the aggregates industry would require a “different” approach to administration and compliance. Lorimer said that Revenue Scotland would seek to “use as much technology as we can…and to work with taxpayers to understand their industry and… undertake our compliance in a proportionate way”.

Tax rates and behaviour change

John Mason (SNP) asked whether the alignment of Scottish and UK tax rates was a good idea, given that the levy could be used to help incentivise different behaviours, such as promoting recycled aggregate.

Justine Riccomini told the committee that it was ‘probably a good idea for the tax rates to be on par’ in order to discourage “competition, tourism or people avoiding taxes or behaving in a different way, because there is a different rate”.

On Tuesday, Tom Arthur argued that rates should remain consistent with the UK Aggregates Levy until further data could be gathered on Scottish taxpayers and revenue. He argued that increasing rates before the impact of the new tax could be evaluated could lead to assumptions and inaccuracies.

Jamie Halcro Johnston (Con) questioned the benefits of devolving the tax “unless there is a variation in the rate”. Isobel d’Inverno argued that the proposals would give the Scottish Parliament and Government “the ability to fashion the tax in a way that better suits Scotland”.

Elaine Lorimer told MSPs that the setting of rates was a decision for Scottish ministers and that currently “what they are looking for is parity (with the UK regime)”.

Liz Smith (Con) asked about the possibility of changes in taxpayer behaviour, with witnesses noting they did not have any examples of UK rate changes impacting taxpayer activity.