Transparency Principles for Tax Policy and Administration
Transparency Principles for Tax Policy
and Administration
Approved during the GIFT Stewards General Meeting
Bogota, Colombia, August 2, 2022
In response to growing attention to the importance of taxation in international development debates, with the support of the World Bank’s Global Tax Program and in collaboration with the International Budget Partnership’s Tax Equity Initiative, GIFT commissioned a set of documents to inform the development of a comprehensive tax transparency and participation framework in 2019. This effort included a compendium, Making Tax Work: A Framework for Enhancing Tax Transparency authored by Professors Richard Murphy and Andrew Baker, a brief written by Paolo de Renzio and Juan Pablo Guerrero, Promoting more open and accountable tax systems: The role of international principles and standards, and a scoping study, Tax Transparency and Informed Public Dialogue in Tax Policies: A civil society perspective on taxes. These documents were designed to address a gap in the current debate – the lack of consensus around what constitutes revenue transparency and how best to promote public participation in decisions regarding taxation – by identifying the information and tools needed to promote strong civil society engagement in tax policy and administration. This research and related conversations informed the development of the principles outlined below that were approved by the GIFT Stewards at their August 2022 General Meeting.
Transparency Principles for Tax Policy and Administration
Defining Tax Transparency
Tax transparency can be defined as the disclosure and publication of quantitative and qualitative data about the tax system, that a society needs to hold decision makers to account and to reach informed judgements on how the tax system is performing during a particular time period. It is a process that supplies the information required to ensure that a tax system works for the benefit of all stakeholders – in and out of government – tax administrators, other government officials, legislators, those who elected them, and those who pay taxes, including any identified disadvantaged and marginalized groups. The information made available through a tax transparency framework is part of an integrated process that includes the collection, analysis, scrutiny and dissemination of data, and the subsequent discussion of tax system performance, as well as the broader fiscal framework that includes the spending side of public budgets.
Specifically, the stakeholders of a tax system require the information that allows them to:
- understand how the tax that people have to pay is determined;
- understand the administrative procedures that prescribe how taxes are paid;
- assess whether the taxes they are expected to pay are fair compared to the contribution required of others within the society of which they are a part;
- determine whether all of those who should pay taxes actually do so;
- evaluate what alternative options for raising revenues exist within their society;
- understand how their tax system compares to those of similar jurisdictions; and
- know how the taxes that are collected are used by government.
Tax transparency also enables dialogue on the design and implementation of tax policies and practices; promotes trust between government and the governed; and facilitates an understanding of the role of government in advancing social and economic goals. Accountability and transparency are two of the central pillars of good governance. A transparent and accountable tax system begins with a statement of the key goals and objectives of the tax system and a statement of what the jurisdiction’s policy and administrative frameworks are designed to achieve so that the performance of a tax system can be measured against overarching intent and purpose. Governments should regularly publish not only goals and objectives, but also the assumptions on which they are based, and the information needed to evaluate whether a tax system is working in the public interest.
Too often, however, the information on revenues that is available is incomplete, not timely, and not made public with the level of detail needed to enable informed debates. Information on critical elements of tax administration – such as audit rates and estimates of tax evasion (“tax gaps”) – is frequently limited. This lack of information on the performance of tax administrators can give rise to perceptions of a lack of fairness that, in turn, reduces compliance with tax laws. And information on what governments don’t tax – tax expenditures: the credits, deductions, and other special treatment that results in a lack of taxation – is generally less available than corresponding information on the expenditure side of the fiscal equation.
A comprehensive framework as outlined in the principles below would provide stakeholders inside and outside of government with the information needed to understand how a tax system works and would prescribe a process for ensuring that meaningful participation informs debate over policies and their implementation. To achieve these goals, GIFT offers the following principles as an elaboration on its previously adopted High-Level Principles of Fiscal Transparency, Participation, and Accountability and Principles of Public Participation in Fiscal Policy. The new principles are intended to apply to all government jurisdictions with the authority to tax and are intended to apply to all country contexts. They are designed to promote improvements in the scope, consistency, and quality of information that governments make available to the public and to establish a framework for how governments meaningfully engage with their stakeholders around issues of tax policy and administration with the ultimate goal of ensuring that public resources are used to advance the public interest.
These new principles address fundamental components of good governance and seek to cultivate the trust required to ensure a more sustainable fiscal pact, namely: the right of access to information, proactive transparency, accountability, and public participation.
Preamble
The parties to these principles:
- Affirm that a meaningful system of tax transparency supplies the quantitative and qualitative data that a society needs to ensure that its tax system works for the benefit of government, for those who elected them, for those who pay taxes, and for all other stakeholders of its tax system, as the basis for good transparent tax governance.
- Resolve that in order to achieve this goal, all people have the fundamental right to access the information needed to assess whether a tax system is meeting its intended goals and working for the benefit of society as a whole.
- Declare that the public and all stakeholders in the tax system have a fundamental right to participate fully and effectively in public debate and discussion with respect to the design, implementation, and review of fiscal policy decisions including those decisions affecting tax policies and administration.
- Recognize that a new set of international principles to guide the development of improved and expanded norms and standards, and provide all relevant actors—including governments, the public, civil society organizations, and international institutions—with a clearer sense of what is expected of them, what they can demand and how they can support the necessary reforms is fundamental to the development of sound domestic tax systems.
- Proclaim that a new set of international transparency principles for tax policy and administration should guide policymakers and tax administrators to ensure that:
01
Governments and national authorities should follow procedures that recognize stakeholders have a right to access information to enable them to reach judgements and participate in consultations, about whether a tax system is meeting stated objectives and working in the public interest. (BASIC).
02
Governments should publish clear and measurable objectives for the tax system on a timely basis, usually annually for each budgeting and reporting period. (BASIC).
03
The objectives of the tax system should be supported by timely and detailed projections of future tax revenues for each annual budgeting and reporting period, along with the sources of information and assumptions underlying all estimates and projections. (BASIC).
04
All taxes and their administrative framework should be codified in law, with changes in policy and substantive administration being made through a legislative process, that involves appropriate meaningful institutionalized consultation with stakeholders and civil society. (BASIC).
05
Taxpayers should be able to access clear, free and accurate information and advice that will maximize their ability to comply with the tax laws of a jurisdiction. They should also have the right to access a clearly set out appeal process and redress mechanism in relation to any liabilities, or judgements against them, which they believe to be incorrect. (BASIC).
06
All taxpayers have a right to confidentiality with regard to their affairs unless specific circumstances require otherwise. (BASIC).
07
Governments should provide the contextual information needed to place taxation within a broader fiscal, economic, and social framework. (BASIC/INTERMEDIATE).
08
Governments should publish a set of accounts on taxes collected at least once a year that includes a discussion of major deviations from budgeted amounts by type of tax, with reference to numerical data and previously published budgets, as well as commentary on whether the tax system has successfully met its stated objectives in the light of this data. (BASIC/ INTERMEDIATE).
09
Tax administration – government relations should be subject to the rule of law and tax administrators should be accountable to executive and or legislative branches of government. (BASIC/ INTERMEDIATE).
10
Where appropriate, governments should collaborate with international and regional financial institutions and tax administrators to meet their international reporting obligations. More generally they should seek to engage with international efforts (inclusive of civil society) to increase revenue transparency, improve administrative practice and participate in research on the impact of tax policies across countries and regions. (INTERMEDIATE).
11
Governments should evaluate and report on the extent to which taxes that are legally owed go unpaid, as a first step in preparing a tax gap estimate (see principle 14). (INTERMEDIATE/ ADVANCED).
12
Governments should seek to examine the impact of and publish information on the amount, sectors and beneficiaries of tax incentives – such as reliefs, allowances and exemptions, in terms of their rationales, costs, benefits and effectiveness. (INTERMEDIATE/ ADVANCED).
13
The data underpinning tax transparency should be subject to verification by an independent agency that audits, evaluates, and reports on the accuracy, quality and fairness of that data. (ADVANCED).
14
Governments should aspire to work with international bodies to periodically evaluate the performance of their tax system by applying advanced assessment tools such as tax gap analyses and tax spillover assessments, to enhance their own and stakeholder understandings of the risks and vulnerabilities within the tax system, and to inform potential reform debates. (ADVANCED/ ASPIRATIONAL).
