The Foundations of Tax Justice
May 24th, 2010
May 24th, 2010
I am often asked what I mean by “’tax justice’. As a result, and as a contribution to the Briefing Sheet series I am developing, I have written the following summary of what I think tax justice is. It is also available as a briefing sheet.
Tax justice is a broadly based concept. It relates to individuals and all taxable entities. But it also relates to tax systems as a whole.
Tax compliance – the duty of the taxpayer
For the individual taxpayer tax justice is about tax compliance. This happens when the individual seeks to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions they undertake coincides with the place and form in which they report them for taxation purposes.
Tax and society
But tax justice is about much more than the individual: tax justice is also about the existence of tax systems that promote social well being within and between societies. It is about the creation of environments in which all people can prosper. That necessarily means that the state institutions and businesses that meet the needs of people can also prosper. But it means yet more than that: it means that those who fail to prosper are protected from misfortune until such time as they can prosper again.
That means tax justice is about four things above and beyond the duty of the individual to be tax compliant. First it is about understanding why we tax. Second it is about defining the attributes of a good tax system. Third it is about defining the process that delivers tax justice and finally it is about understanding transparency – without which tax justice is not possible.
The 5 Rs for taxing
There are five reasons for taxation. Tax is used to:
If tax justice is to prevail taxes must be set taking all these considerations into account.
The 10 Cs of a good tax system
An efficient taxation system has nine attributes with one over-riding characteristic to which they all contribute. An efficient tax system is:
In combination these are key attributes of a good tax system.
The 6 steps to tax justice
Tax justice can be defined as a six stage process:
The 11 steps to financial transparency
Tax justice cannot happen by chance. To achieve it information is needed. That means all potentially taxable people, whether they are human beings or legal entities created under law, must be transparent about what they do, are and have done.
Financial transparency exists when the following information is readily available to all who might need it to appraise transactions they or others might undertake or have undertaken with another natural or legal person:
Creating tax justice
Tax justice is not simple, as is already apparent. That, however, is not a problem: a great deal of what humans do is not simple, and yet it is achieved none the less. Tax justice is possible: that is what is important.
These five criteria, tax compliance on the part of taxpayers and the four sets of attributes on which just tax systems are built, are the foundations of tax justice. Together they create a world in which social justice can prevail for all.
That is what tax justice seeks to achieve.