Scotland's Tax Strategy: Building on our Tax Principles

Introduction

Since the devolution of tax powers in the Scotland Act 2012, the Scottish Government’s approach to tax has been guided by Adam Smith’s four canons of taxation: Certainty, Proportionality, Convenience and Efficiency. The Framework for Tax reaffirmed our commitment to these principles, adding those of Engagement and Effectiveness, to set the foundation of the Scottish Government’s approach to tax policymaking. It also emphasised the importance of fairness and progressivity as key parts of this approach.^[i]

The Framework for Tax was published as we were responding to the cost-of-living crisis and economic shocks following the Covid-19 pandemic. The tax system played an important role at that time in supporting the immediate fiscal challenges facing the country. Significant cost pressures have arisen over the subsequent years, many of which will persist over the medium term. Scotland also faces a number of systemic challenges, such as an ageing population, that will create fiscal challenges over a longer time frame.

In response, the Scottish Government’s 2023 Medium Term Financial Strategy^[ii] (MTFS) set out the three-pillar approach that the Government is taking to ensuring that the public finances are on a sustainable trajectory. This Tax 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 intend to publish a new MTFS in spring 2025, accompanied by a Fiscal Sustainability Delivery Plan. This Tax Strategy will inform the approach and commitments set out in both publications.

Developing the Strategy with Stakeholders

Process

Our core tax principle of engagement has been integral to the development of this Strategy. We have engaged with a broad range of stakeholders including businesses across Scotland, think tanks, academics, civil society groups and tax professionals. To learn from international best practice, we have also met with current and former officials from New Zealand, Ireland and Wales to discuss and learn from their approach to strategic tax policy.

Our consultative engagement programme was designed to ensure that a full and detailed range of contributions and views were considered. We facilitated and engaged stakeholders via roundtables, thematic workshops, 1:1 sessions and broader group discussions. These sessions were chaired by Ministers, senior Scottish Government officials and external stakeholders.

The Tax Advisory Group was established in July 2023 to provide strategic advice on tax policy and strategy to the Scottish Government. Members have provided a diverse range of views and experience to the Strategy’s development, identifying areas requiring action in the current system, improving our evidence base and considering priorities for the future tax system.

We have also worked collaboratively with both Revenue Scotland and HM Revenue and Customs (HMRC), given their respective roles in the collection and management of fully devolved Scottish taxes and Scottish Income Tax.

Stakeholder Views

The views of stakeholders have shaped the focus of this Tax Strategy. This includes providing stability and certainty to support investment and confidence in the Scottish economy and the Government’s priority of fair, green economic growth. There were calls for more regular and meaningful engagement between the Scottish Government and stakeholders to support the scrutiny of tax decisions; for broader and more transparent evidence on tax; and for improved communications on tax to ensure everyone understands what they should pay and the role that revenues have in supporting the delivery of our public services.

A list of stakeholders we have engaged with to date is detailed in Annex B.

Future Engagement

We will continue with this approach to engagement as we implement this strategy, undertaking more regular and systematic discussions on tax. In doing this, we will make it clearer how views gathered from stakeholders are considered as part of the policy development process. This will include reaching out to groups who may not often contribute to the conversation on tax, including young people.

We will also host our first Scottish Tax Conference in 2025, providing an opportunity to bring together a diverse range of stakeholder views to engage directly with the Scottish Government.