S'pore, HK Tax Systems Seen As Most Fair

Source : The Business Times, Jun 30, 2008

Singapore and Hong Kong have the fairest and most transparent tax systems, out of six major developed countries, says an international study of finance professionals.

Australia, the United Kingdom and the United States fared less well - being ranked as having complex tax systems with their volume of laws, directives and regulations.

The study, by the Association of Chartered Certified Accountants (ACCA) surveyed members in Australia, Canada, Hong Kong, Singapore, the UK and the US - a spread of different types of economies with varying levels of complexity in their tax systems.


Respondents ranked the various tax regimes according to how 'fair' they were, relative to one another, looking at the 'simplicity', 'transparency' and 'burden' of each regime.

For the purposes of the survey, ACCA defined 'simplicity' as the ease by which one could calculate one's tax liability, the number of tax rates and allowances and the number of loopholes in the system. 'Transparency' referred to the extent to which the tax system is designed to be easily understood and accessed. And 'burden' referred to the extent to which certain groups, such as businesses and families, may pay disproportionately more tax.

Respondents in Singapore and Hong Kong had an overall positive view of the fairness of their tax regimes.

They ranked the two regimes tops, in terms of simplicity and transparency - agreeing that compliance requirements in their jurisdictions were clearly communicated.

That's as compared to the view from respondents in the UK, Australia and Canada, who felt their regimes were less fair and somewhat complex. Respondents in the US felt the tax regime there was complex, but not necessarily unfair.

The results showed an overwhelming belief from all countries that it is the volume of directives, laws and regulations that has the greatest effect on tax complexity. 'The message from our research is for governments to reduce the volume of laws, directives and regulations that contributes most to complexity,' observed Professor Francis Chittenden, ACCA Professor of Small Business Finance at Manchester Business School, who wrote the survey report with colleague Hilary Foster.

'There is a fundamental issue for governments around the world to decide the purpose and structure of tax systems, and importantly to communicate the rationale behind these decisions.'

Focus group discussions conducted by ACCA with members from the six countries also threw up interesting findings.

UK participants felt taxes in their country are unfair, too complex and lack transparency. They also said there is inadequate communication from the tax authorities - which is leading to a breakdown of trust in the system.

The US group felt the tax system was complicated and burdensome, but not necessarily unfair. The overall view of the Australian group was that their tax system is complex, with fairly high taxes and compliance costs.

The Hong Kong group believed that their tax rules are simple but that the way in which the tax authorities interpret them has created uncertainty and led to unfairness. They said commercial transactions are becoming more complicated and their tax system needs to keep up to stay equitable.

The Singapore group said that 'compassion' or 'empathy' should be included as a characteristic of a fair tax system. They thought that the Singapore tax system was more 'compassionate' compared to other systems in the region.

They said it was less aggressive towards taxpayers and was generally seen to be sympathetic towards the man on the street and empathetic with local culture and practices.

The report concludes that trust is crucial for a tax system to work in any country, that is, governments should create an environment in which citizens believe they have played a part in setting the system and that the system treats them with respect. More taxpayers will feel inclined to comply, reducing evasion and associated administrative costs.

ACCA also believes governments should explore the creation of flexibility in their tax structures to allow for a swift response to changing economic conditions.