Chapter 6. The Process of Tax Policymaking and Legislation

Transcription

1 Chapter 6 The Process of Tax Policymaking and Legislation 6.1. Tax policy and legislation In most countries the tax administration is not responsible for tax policy and tax legislation. Advising on policy and designing new tax legislation are the responsibility of a separate directorate in the Ministry of Finance or the responsibility of the Treasury. Broadly speaking, one could say that the tax administration deals with the current tax system, while the Treasury or the policy and legislative directorate deals with that of the future. This is not a strict separation there will be interaction in both areas. This interaction should ensure a proper balance between legislation and its successive implementation. Because both the legislator and the tax administration contribute each from its own perspective and task set to the policymaking and legislative process, the ensuing policies and legislation proposals will be as comprehensive as possible. From their respective positions, both organizational components are able to take all aspects into full consideration, which allows them to assess what particular aspects are relevant from a political, legislative and implementation angle. Were they merged into one organization, no critical analysis of the other s task would be possible. In a single organization information on developments coming from the technical implementation field might be neglected because of politically desirable amendments to the law. There would be no discussion between two different organizations, and abstract policy would tend to win over down-toearth administration in the long run. A disadvantage of the separation of the tasks of legislator and administrator is the risk that the gap between policymaking or preparing legislation, on the one hand, and implementing the law, on the other, becomes so wide that it confronts the administration field with unsolvable problems. Policymakers and legislators may lose contact with daily practice, which could mean that their policies and legislative proposals may not be in line with day-to-day circumstances. To avoid these risks, close collaboration, both structurally and incidentally, remains essential. 61

2 Chapter 6 - The Process of Tax Policymaking and Legislation Tax systems are subject to trends and developments. For example, instrumentalism has an impact on the structure of the tax systems. Instrumentalism is used in the aim to realize policy goals with the help of tax legislation. In addition to their primary goal of generating income for the government, taxes are used to encourage or discourage certain forms of taxpayer behaviour. Although the use of these fiscal instruments attracts politicians, a major disadvantage of instrumentalism is that it tends to complicate tax legislation. The final decision on the extent to which instrumentalism should be included in the tax system lays with the politicians; however, tax administrators have a clear role to explain to tax legislators the implementation risks caused by the use of instrumentalism. This may be very topical, as politicians most likely will advocate the instrumental use of taxation to solve the crisis on the financial markets. As long as taxation has existed, tax administrators and academics have complained about complex tax policy, complex tax laws, and the resulting ineffectiveness in tax administration. However, Ministers of Finance and members of parliament in general are not tax administrators by origin, and they will judge the tax system by other standards. Simplicity need not be, and probably is not, one of them. Within the European Union, Ministers can hardly distinguish themselves in the financial field by anything other than tax policy. Complexity does not stand on itself. It is a function of the level of government interference and of public service that society asks for. High levels of government activity and public service generate high tax rates, and high tax rates create complexity. The call of tax people for simplicity will not break through that logic. As in most other countries, in the Netherlands the tax administration is not responsible for the preparation of tax legislation. This is the responsibility of the State Secretary for Finance, although the actual work is done by the Directorate-General for Tax and Customs Policy and Legislation. Final decisions are made by the States-General. International regulations are becoming increasingly important, especially in the areas of customs and indirect taxes. In particular, the European Union plays a dominant role in this respect. For the DTCA the existing legislation is a given reality. The question as to whether the Netherlands needs a new tax law is a political question, as are decisions about tax bases and rates, deductions and exemptions. 62

3 6.2. The role of The Dutch Tax and Customs Administration Trends such as the growing importance of environmental or green taxes compensated by lower rates for direct taxes such as personal income tax and corporate income tax are the outcome of a process of political decision-making. The States-General are responsible for the content of legislation. The DTCA, as an organization that enforces the law, is responsible for the implementation and execution of the laws. The existing legislation is a given reality. This does not mean that the DTCA has no influence on the preparatory process of the tax legislation. As part of the implementation task, it plays an important role in advising the State Secretary about the feasibility, enforceability and cost effectiveness of intended legislation The role of The Dutch Tax and Customs Administration In the legislative process, the DTCA has a role in the implementation programme of new legislation. This programme consists of the following stages: assessing the feasibility and enforceability of the legislation; calculating the implementation costs (incidental and structural); implementing the legislation within the organization; unambiguously enforcing the legislation; and evaluating the new legislation. The enactment process of new legislation comprises the following roles: The organizational advisory role. The first role is an advisory role in respect of organizational and tax aspects of new legislation: the implementation test. The role includes a number of aspects. Advice is given on the feasibility, the enforceability and the costs of the legislation. Advice on feasibility concerns tax aspects of a technical nature, consequences for the organizational structure of the DTCA as well as for the planning of its operations, consequences in respect of computerization, any effect upon obligations and their costs for the taxpayer, any effects on non-tax revenue and information for the taxpayer. Advice on enforceability of new legislation deals with its acceptance by society, recognizability (simplicity and understandability), the 63

4 Chapter 6 - The Process of Tax Policymaking and Legislation scope of regulations, sensitivity to misuse and abuse, and possibilities for control and sanctions. Advice on the costs of implementation refers to the necessity to claim additional budgets if the new legislation results in additional duties or activities of the tax administration. These costs involve additional employees, modification or extension of computer software, costs of information and education material, etc. In calculating these costs, a distinction is made between exceptional (unique) and structural costs. In addition to the above types of advice, the DTCA tests new legislation from a tax and technical point of view for its political sensitivity and policy aspects. The implementation role. The legislation has to be implemented by the tax administration. Tax officers and the public must be informed that new legislation will come into force, on which date it will be effective, and the way in which the new legislation must be applied and enforced. To this end, new legislation must be incorporated into training and information material. Automatization systems have to be built in a timely manner. New forms and procedures have to be prepared. The monitoring progress. The progress of the legislative process, subsequent implementation, and actual outcomes/results are monitored in a systematic way. The outcome of an evaluation is, in some circumstances, reason for a recommendation to change the law. An important aspect of the implementation test is the recognizability, simplicity and understandability of the legislation. The following concrete aspects are tested: appropriately and clearly defined target groups; use of unambiguous and lucid concepts and definitions; use of clear criteria; use of fixed arrangements, valuation rules, fixed rates and amounts; avoidance of superfluous and difficult-to-apply thresholds and limits, or of complicated computations; keeping the number of exceptions to the rules to a minimum; and minimization of options from which the taxpayer is allowed to choose. 64

5 6.4. Compliance costs and administrative costs 6.3. POWER The responsibility for the enforcement of tax legislation provides the DTCA with great challenges, since politicians and citizens place high demands upon legislative enforcement. To be effective, legislative drafting and legislative enforcement processes have to be aligned. The purposes of this alignment are: coherent and consistent legislation; achievement of intended effects; and reduction in implementation time. To meet the aforementioned challenges, the DTCA initiated POWER (Programme for and Ontology-based Working Environment for modelling and use of Regulations and legislation) in Within POWER a method is being developed, together with supporting tools, for the development and implementation of tax legislation and regulations. The method and tools make it possible to translate legislation and regulations into a form that can be used for several purposes, such as system development and organizational design. The results of the programme consist of several knowledgebased systems for citizens and experts, which support their decision-making processes. Furthermore, tools have been developed to partly automate the modelling process and to support legislation drafters Compliance costs and administrative costs Besides the attention paid to the feasibility and enforceability of legislation, increasing attention is given to the administrative expenses that tax regulations entail, in particular for business and industry. Already in the 1990s a committee (Van Lunteren Committee) was established to make proposals to decrease the administrative expenses resulting from tax regulations. This committee consisted to a large extent of representatives from business and industry. It made significant proposals in the areas of harmonization of concepts, simplification of procedures, reuse of information and so on, which led to a substantial alleviation of administrative expenses. In addition, a model was developed to assess the effects of new legislation on administrative expenses (the Standard Costs Model). This model is used now for any change of legislation. More recently the 65