Devolved taxes: policy framework consultation

2. Scottish Approach to Taxation

The Scottish Government’s overarching approach to taxation, whilst designed to be fit for the 21st century, is embedded in Adam Smith’s four key principles.  These are:

• Proportionality to ability to pay – the tax system should be progressive, with those who are able to pay more tax contributing a greater share;
• Certainty for the taxpayer – individuals and businesses should have confidence in the tax system when making financial decisions;
• Convenience – the tax system should be as simple as possible and easy to understand and comply with; and
• Efficiency – tax policy should be designed to ensure that it is cost-effective to administer.

In addition to Adam Smith’s founding principles, the Scottish Government takes the toughest possible approach to tackling tax avoidance in relation to the fully devolved taxes.  The Scottish General Anti-Avoidance Rule allows Revenue Scotland to take counteraction against arrangements which it considers to be artificial, even if the arrangements operate within the letter of the law^[7].  In this respect, the Scottish GAAR is significantly wider than the corresponding UK General Anti-Abuse Rule which is based on a narrower test of 'abuse' rather than 'artificiality'.

Another cornerstone of the Scottish Approach to Taxation is engagement with people, communities and businesses.  Taxes do not just support public services, they also allow the Government to support business and encourage growth through economic development, skills investment and major infrastructure. So everyone is a stakeholder.