Scotland's Tax Strategy: Building on our Tax Principles

Annex A - List of Priorities and Actions

Priorities for the Existing Tax System

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 will also:

• Maintain our commitment that over half of Scottish taxpayers will pay less Income Tax than they do in the rest of the UK.
• Uprate the Starter and Basic rate bands by at least inflation.
• In light of the UK Government context of a freeze to UK Higher rate thresholds to 2027-28, we will maintain the Scottish Higher, Advanced and Top rate thresholds at current levels in nominal terms. This will be reviewed annually at the Budget.

We will 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.

To do this we will:

• Begin the next phase of work of the Joint Working Group on Sources of Local Government Funding and Council Tax Reform (JWG) with a process of engagement in 2025 to build consensus on the way forward for Council Tax Reform. We will publish the outcome of this by the end of this Parliamentary term.
• Support open dialogue and engagement through forums including the sub-group on NDR established under the New Deal for Business, to ensure that the NDR system supports business growth, investment and competitiveness, whilst acknowledging the important role NDR income plays in funding public services.
• Explore how NDR legislation might be consolidated and simplified.
• Carefully consider the outcome of the UK Government’s consultation on ‘Transforming Business Rates’, including its impact on the block grant for Scotland, and noting the differences in the NDR tax base between Scotland and England. This will ensure that we continue to deliver a competitive environment to do business, whilst also recognising the important role that NDR plays in funding public services.

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

To do this we will:

• Introduce the necessary secondary legislation for the Scottish Aggregates Tax to the Scottish Parliament and work with the UK Government to ensure that the new tax can be introduced on 1 April 2026.
• Work with the UK Government to resolve subsidy control issues with the current Highlands and Islands exemption to enable the implementation of Air Departure Tax.

The Economy and the Tax System

We will drive forward a renewed focus on expanding the tax base and growing tax revenues by progressing specific economic activities with the potential to grow the economy and get more people into work.

We will broaden our understanding on how the tax environment impacts on the competitiveness and attractiveness of Scotland’s economy.

To support this, we will:

• Assess the links between tax policy and the economy in greater detail through a programme of evidence development. Our initial focus will be on Income Tax, our largest source of tax revenues, publishing an initial evidence review in 2025.
• In line with the principles of the New Deal for Business, we will continue to engage with businesses and organisations to contribute to the assessment of the cumulative impacts of Scottish, UK and local tax policies on the competitiveness of the economy.

Administration of the Existing Tax System

We will deliver a fair, efficient and effective tax system in Scotland.

To do this we will:

• Make it easier for taxpayers in Scotland to understand and navigate the tax system by increasing public understanding of tax, including through publishing our tax literacy outcomes.
• Strengthen our approach to Scottish tax compliance in collaboration with HMRC and Revenue Scotland.
• Work with tax administrators to streamline and ensure efficient tax collection mechanisms to reduce the costs of tax collection, including exploring how to increase the digitalisation of the Scottish tax system to allow more effective data sharing.
• Renew the consideration of the case for introducing changes to the legislative processes for the fully devolved taxes.

Evidence and Evaluation

We will enhance our evidence base to inform tax policymaking and support evaluation of tax changes.

To do this we will:

• Formally evaluate the impact of the changes to Income Tax in 2023-24 and 2024-25 once outturn date is available and, in advance of this, closely monitor behavioural impacts on different groups of taxpayers, business, and the economy using a range of economic evidence and stakeholder engagement.
• Conduct, our first five-year review of LBTT by the end of this Parliament, to support an evaluation of key aspects of the tax legislation, including the application of the ADS where exceptional circumstances and events occur. The review will support decisions in the next Parliament on the case for any legislative changes.

Future Priorities

We will explore the reforms needed to continue to deliver sustainable and growing tax revenues in the future.

Guided by our Scottish tax principles, we will begin a programme of work focused on:

• Further devolution of tax powers
• Balance of taxes across labour, income and wealth
• Tax as a lever to encourage positive behavioural change