The foundations of modern tax systems were laid down in the era of the industrial revolution. Considering today’s fast-changing world, tax systems will need to adapt.  Just as we now see our planet as an interconnected system, we must take a fresh look at our tax systems as a whole.

 

This was precisely the aim of  ACCA (the Association of Chartered Certified Accountants) and Deloitte’s lively debate that discussed  Tax as a force for good: Rebalancing our tax systems to support a global economy fit for the future in Brussels.

 

Gianmarco Monsellato, EU Tax Public Policy Leader at Deloitte EU Policy Center opened the debate with strong words: “Tax is necessary, green economy is vital. Do not downgrade green economy to a new basis for raising tax revenue, but price the cost of pollution through allocated tax and use focused public spending via negative tax or other means.

 

The best way to use tax to promote the shift to a green economy is to have an efficient tax system that provides funding for public policies defined as a force of good: neutral tax is a powerful policy tool!”

 

The debate confirmed that EU tax systems are out of sync with the main challenges of our time, such as globalisation, digitisation, climate disruption, pollution, water scarcity, waste, unemployment and underemployment. Climate change and the transition towards a cleaner energy are a priority in the political agenda.The question is how to better balance different tax bases and align policy with the goals of inclusive circular growth. Taxation has an important role to internalise externalities. Specific tax measures, such as a carbon tax, landfill levies or taxes on single-use plastic, may help but they are no longer enough. In order to craft a tax system that is fit for the 21st century, it is necessary to think more widely about what governments should be taxing, and how the tax revenues should be used.

 

Several speakers however stressed that it  is crucial to consider policy intent and its revenue implications together: carbon taxes raise revenue and thus create opportunities, while subsidies and tax expenditures spend revenue and thus harden existing challenges. It is also necessary to consider the impact on environment of environmental taxes, who would pay them, as well as the link with growth and jobs, and whether these taxes would generate sufficient revenues for redistribution. The difficulties to find a uniform answer within the EU to the question was also stressed, but the  EU is a useful  laboratory to verify what can be agreed between sovereign Member States with a variety of interests.

 

Vice-President of the European Parliament, Heidi Hautala, MEP, said “Tax has been and still is a force for good. However, situation differs in all countries: the willingness of people to pay tax varies and it is important to understand the societies, their traditions and challenges.

 

It is time for us all to be active in this debate because otherwise we will come up with very clumsy instruments and we will not be able to get the results that we need. We need to go towards a just transition. If there is a feeling of tax injustice, people won’t follow our ideas. The EU is in the perfect place to discuss how this just transition can look like”.

 

Yen-pei Chen, Tax and Corporate Reporting manager at ACCA’ concluded: “As we stare into the face of climate crises around the world, ACCA  wants to shine the spotlight on how our tax systems can really evolve to become a force for good, one that works for our societies and our planet. Of course, as we illustrate in our recent report,  tax is only one among a range of different policy options to halt the pace of climate change: regulation, green incentives, and changes to capital markets, such as those that the EU’s sustainable finance action plan seek to bring about, must all play a role.

 

It’s often too easy to focus on individual measures, but we urge everybody to take a step back, and think holistically about how the different actions that are at our disposal interact with each other, and the wider knock-on impacts that these interactions can have on our societies and our planet”.