Contours and Conflicts in Tax Design: Principles and International Practice

18 Pages Posted: 23 Jul 2018

See all articles by Parthasarathi Shome

Parthasarathi Shome

International Tax Research and Analysis Foundation; London School of Economics - Law Department

Date Written: June 20, 2018

Abstract

Tax design is said to be based on certain principles comprising efficiency of resource allocation despite taxation’s distortionary effects, maintenance or encouragement of equity among taxpayers, and assisting in macro-economic stabilisation. Other safeguards are a tax system’s revenue productivity, clarity of taxation law, ease of tax compliance, and facilitation of tax administration. Common experience reveals, however, that no tax structure complies with these criteria all at once, for the principles tend to conflict with one another.

The term reform is variously used by authors and across tax professions — economists, legal experts, accountants, administrators — their emphasis varying significantly. Bridging these gaps remains a crucial challenge. Empirical evidence also suggests that when a new administration takes over, it puts its own stamp on tax policy, egged on by lobbyists who were adversely affected in earlier change cycles. And, with the internationalisation of taxation, a country’s tax structure gets affected by developments in political or trading blocs.

With this background, this paper points towards vacillations and drifts in the way tax changes occur. Consumption taxes (VAT/GST), production taxes such as excises, environment taxes, and user charges, as well as direct taxes including income and wealth taxes, and their component taxes on dividends, capital gains, cash-flow, presumptive bases, minimum tax payments, and emerging factors in international taxation, are taken up.

In conclusion, the effects of taxes go beyond narrow economic aspects. Legal, accountancy or administrative aspects carry important implications. The glass wall between tax economics and tax law or accountancy, and between tax economics and tax administration, if removed, would generate an awareness with beneficial crossover effects. Then tax reform can be discussed on the same plane and be implemented with comparable understandings.

Suggested Citation

Shome, Parthasarathi, Contours and Conflicts in Tax Design: Principles and International Practice (June 20, 2018). LSE Legal Studies Working Paper No. 11/2018. Available at SSRN: https://ssrn.com/abstract=3199902 or http://dx.doi.org/10.2139/ssrn.3199902

Parthasarathi Shome (Contact Author)

International Tax Research and Analysis Foundation

No Address Available

London School of Economics - Law Department

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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