Transparent Tax System? Fact or Fiction?

1960: The Amazing Transparent Man

As a financial planner, one of the most significant issues that I have to deal with is taxation. I'm no Accountant (I believe in allowing people to specialise in what they are good at) but I have to deal with various aspects of the tax system that can be a frustrating exercise. At the moment we are counting down the days until the end of the tax year, which is always the same. We are helping clients ensure that proper allowances are used, capital gains are triggered  and so forth. Tax is essentially an emotive and highly political issue. In many ways it is voluntary, in that it is possible to arrange your affairs so that you pay hardly any tax (if any). This inevitably carries some problems - such as residing outside of the UK for a set number of days each year and a huge array of legitimate tax avoidance measures. However, there is a sense of civic duty in paying tax - to pay for our roads, hospitals, welfare system and so on. Most of us would probably think that we pay too much tax.

The Government is planning to provide taxpayers with an annual statement of how their tax was spent. The idea being that this will show how much tax you paid and how this was used. Whilst I support a clear, no-nonsense approach to public finances, I have to say that I have concerns about this initiative. For starters, it only considers direct tax (income tax) it does not include indirect taxes like VAT, excise duty, TV licenses, Road Fund tax, Council Tax. Neither does it include other taxes that are paid by businesses - employers National Insurance, corporation tax etc, not even capital gains tax or tax on investments (tax on dividends). So the data is considerably flawed. It also has a potential to mislead, your tax may well pay for schools and so forth, but the way this is funded is not directly down to you and neither is it your choice. Some might look at their tax and believe that they don't pay enough to this or too much to that - though tax is not selective. Importantly it does not make allowance for the spending that is done on "our behalf" that is not met by taxes, but by the Government borrowing money (which is why we are in a mess and having cuts). So if the statement was for UK plc I would be happy to support it, but it won't be. There are too many vested interests in keeping the tax system murky and frankly overly complex. I regret that this will merely become a tool for any politician, whatever their view, to support arguments based on flimsy information. As ever, the truth can be hidden in the numbers. As suggested before in this blog, I am an advocate of a full in-depth reformation of the tax system, aligning taxes, so that there aren't differentials between the actual amounts and rates of tax paid depending on whether you pay tax as a business, investor, entrepreneur, retired person, on welfare, employee, employer or self-employed, where it does not pay to "hide" wealth and everyone contributes equally (which does not mean the same). Now that would be fair and radical, but highly unlikely.