Scotland's Tax Strategy: Building on our Tax Principles

Executive Summary

Scotland's Tax Strategy: Building on our Tax Principles sets out the next steps in the evolution of the tax landscape in Scotland, expanding on our Framework for Tax published in 2021.

In 2023, the Scottish Government published its Medium-Term Financial Strategy (MTFS), which outlined our three-pillar approach to ensuring that the public finances are on a sustainable trajectory. This Strategy delivers on the pillar “to maintain and develop our strategic approach to tax”, sitting alongside two other pillars that ensure public money is focused on Government objectives, and focussing on economic policies and actions with the greatest potential to grow and strengthen Scotland’s economy.

We have engaged with over 65 organisations, groups and individuals to deliver a Strategy which represents the breadth of views from individuals, households and businesses across Scotland. There was a clear ask from all stakeholders to evolve the conversation on tax; to show how the Scottish Government will build a tax system that is fit for the future and supports economic growth.

Tax decisions we have made since devolution, distinct from the rest of the UK, are a vital component of meeting our fiscal challenges - our policy choices on Income Tax made since 2017-18 are estimated to raise up to £1.7 billion in 2025-26 - but they are only part of the story. The fiscal and economic challenges that Scotland faces clearly go beyond a single budget cycle and require longer term policy responses. We have limited tax powers at our disposal and interactions between the Scottish and UK tax systems as well as UK Government fiscal choices, have real and direct impacts on our own tax choices and revenues.

It is within this complex and challenging context that the approach set out in this Strategy will be delivered, in collaboration with our partners, with a focus on national and local taxes. These will be prioritised around five areas.

Our priorities for the existing system: A stable tax system allows taxpayers to better manage their finances and helps businesses to plan and make investment decisions with confidence. That is why, for the remainder of this Parliament, it is our intention not to introduce any new bands or increase the rates of Scottish Income Tax.

We have heard from stakeholders that there is a clear need to build consensus on the way forward for Council Tax reform, and to consider the role that Non-Domestic Rates (NDR) plays in funding services and supporting growth. We will therefore work in partnership with Local Government to ensure that local taxes are fair and sustainable and to explore the creation of more revenue generating powers for local authorities.

We will also complete the devolution of the remaining taxes the Scottish Government has committed to delivering.

On Economy and Tax: Our priority is creating the conditions for economic growth that increases employment and earnings, lifts people out of poverty, and raises living standards. We are focused on interventions that will support our economy to be more productive and competitive, and as part of this we are taking action to grow our tax base, maximising our potential Income Tax and other tax revenues.

As we strive to grow the tax base and deliver economic growth, we understand the impacts that tax policy choices may have on individual and business decisions and behaviours, and the competitiveness of the Scottish economy. We are therefore broadening our evidence on how the tax environment impacts on the competitiveness and attractiveness of Scotland’s economy.

On Administration: The principles of efficiency and effectiveness are paramount to ensuring that the Scottish tax system is fit for purpose and provides a high standard of service for Scottish taxpayers, supporting them to understand what and how to pay tax in Scotland. We will make it easier for Scottish taxpayers to understand and navigate the tax system, strengthen our approach to Scottish tax compliance, and consider changes to the legislative processes for fully devolved taxes.

On Evidence and Evaluation: We will enhance our evidence base to inform tax policymaking and support a more systematic and regular programme of appraisal and evaluation across the Scottish tax system.

Future Priorities: We will explore the reforms needed to deliver sustainable and growing tax revenues in the future, such as seeking further devolution of tax powers from the UK Government, reviewing how tax is balanced across labour, income and wealth, and considering how tax can be used to encourage positive behavioural change.

We will publish an update on progress against this Strategy in early 2026.