Breaking New Ground? Developing a Scottish tax to replace the UK Aggregates Levy: consultation

Introduction

Scottish Approach to Taxation

The Scottish Government's approach to tax policy has developed over time, particularly following the devolution of further tax powers in 2016. In December 2021, the Scottish Government published Scotland's first Framework for Tax, which sets out the principles and strategic objectives that underpin the Scottish Approach to Taxation, as well as our approach to decision making, engagement and how we manage and sequence tax policy and delivery.

Our approach continues to be underpinned by the four canons of taxation proposed by the renowned Scottish economist Adam Smith. These are Certainty, Proportionality to the ability to pay, Convenience and Efficiency. We have added two further principles to reflect our commitment to engaging and collaborating with stakeholders, and to reflect our approach to tackling tax avoidance.

The Framework ensures that our decisions on tax policy are coherent and rooted in a defined set of principles and objectives, rigorously appraised and developed through an established policy cycle, which puts proactive engagement at the heart of tax policy making.

In carrying out this consultation and future work to develop the arrangements for a devolved aggregates tax, we will take full account of the principles and objectives set out in the Framework.

Developing a devolved aggregates tax

The Scotland Act 2016 provides the Scottish Parliament with the power to introduce a devolved tax on the commercial exploitation of aggregates in Scotland, to replace the UK Aggregates Levy. This followed the Smith Commission, which recommended that the power to implement such a tax be devolved once litigation then underway in relation to the UK levy had been resolved. This was confirmed in early 2019.

The UK levy applies, in general terms, to the commercial exploitation of primary aggregates – in essence, crushed rock, gravel and sand – which are used for bulk fill in construction related activities. It has been in place since 2002 and was recently reviewed by the UK Government.

The UK Government review, and the process of consultation associated with it, has assisted the Scottish Government's understanding of the arrangements for the UK levy, the underpinning rationale for key elements of the tax, and the views of the industry in Scotland on devolution.

With the litigation mentioned above now resolved, this consultation seeks views on how a Scottish replacement to the UK levy should be structured and operate. Responses to this consultation and associated engagement will support the development of a Bill that will set out the key arrangements for a devolved tax.

This will be a distinctive Scottish tax, including in terms of arrangements for its collection and management by Revenue Scotland. Throughout this consultation, and to provide context for readers, key arrangements for the current UK levy are cited, and views sought as to the case for how these could be adopted for a devolved tax.

However, whilst we will take these into account, we wish to consider and explore the case for any changes, refinements or enhancements that are consistent with the provisions of the Scotland Act 2016. This aims to ensure that a future tax is well-designed, takes full account of the Scottish context and maximises the opportunities offered by devolution, including how the tax is administered. In particular, we want to ensure that a future tax is aligned with the Scottish Government's ambitions for the circular economy, and takes full account of the Scottish Approach to Taxation.

We want to hear from as wide a variety of individuals and organisations as possible, in particular but not limited to those involved or with an interest in the aggregates business, construction and infrastructure, environmental, tax accountancy and legal sectors. We have included questions throughout this consultation document. A full question list is provided in Part D, as well as details on how to respond.

In addition to welcoming responses to this consultation, the Scottish Government will also seek to engage with key stakeholders and those with broader interests in the topic. Revenue Scotland will be involved in its role as Scotland's tax authority, but may also engage directly with potential taxpayers. This engagement will form an essential element of the Scottish Government's approach to both the primary and secondary legislation required to introduce a new tax, providing an opportunity to focus in detail on key aspects of this consultation.

Consultation Structure

This consultation document comprises four parts.

Part A – Strategic Context and Tax Structure – considers:

• The context for a devolved tax, including the Scottish Government's ambitions to support a more circular economy (Chapter 1)
• The scope of a tax: the definition of "aggregate" and "commercial exploitation" (Chapter 2)
• The availability of exemptions and reliefs (Chapter 3)
• The arrangements for future tax rates (Chapter 4)
• The potential for an aggregates sustainability fund (Chapter 5)

Part B – Operational Considerations – considers:

• Registration (Chapter 6)
• The making of tax returns and payments (Chapter 7)
• Tax compliance (Chapter 8)
• Tax avoidance and evasion (Chapter 9)
• Penalties (Chapter 10)
• Dispute resolution, reviews and appeals (Chapter 11)

Part C – Potential Impact – considers relevant impact assessments that are being or may be prepared as part of the process to develop a Bill providing for the tax:

• Impact Assessments (Chapter 12)
  • Business and Regulation
  • Children's Rights and Wellbeing
  • Environment
  • Equality
  • Fairer Scotland Duty
  • Island Communities

Part D – Reference and Response – includes background information that may be helpful, a full list of consultation questions, and details of how to submit a response:

• Glossary of Terms
• UK Aggregates Levy: Reliefs for Industrial, Agricultural and Exempt Processes
• Question List
• Responding to this Consultation

Next Steps

The Scottish Government's Framework for Tax sets out five key stages related to the development of tax policy.

• Stage 1: Engagement and Analysis
• Stage 2: Policy design
• Stage 3: Decision making
• Stage 4: Implementation
• Stage 5: Evaluation

This consultation marks the progression of stage one, with previous and ongoing evaluation of evidence and feedback helping to reach this point.

Responses to this consultation and the associated programme of engagement will support the development of a future Bill that provides for a devolved tax. This will be introduced during the current session of the Scottish Parliament. Further details on the Bill proposal and progression process can be found on the Scottish Parliament website.

The Scottish Government expects that the Bill will set out the key provisions of the tax, such as scope, definitions, liability to pay, administration and so on.

As with other fully devolved national taxes in Scotland, in addition to an Act of the Scottish Parliament, secondary legislation will also be required before any tax could be formally introduced. This legislation may take the form of Scottish Statutory Instruments to set the rate or rates for the tax, exemptions and reliefs and so on.