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Institute calls for better
evaluation of Tax Reliefs to help businesses grow
GOVERNMENT strategies to use Tax Reliefs to help small businesses grow must be validated by regular reviews of
them, says the Chartered Institute of Taxation (CIOT). The Institute makes the call in response to a Treasury consultation on how to
increase the supply of capital to growing, innovative firms. The CIOT's response
focuses on steps the Government could take to make current Tax Reliefs more
efficient and effective, to provide the best support in line with their policy
objectives.
The CIOT advocates greater post legislative review and evaluation of Tax
measures, including Tax Reliefs. This reflects recommendations in the Better
Budgets report published earlier this year by CIOT, the Institute for Government
and the Institute for Fiscal Studies.3 Evidence based evaluation would also
allow concerns, justified or not, that these reliefs are used as vehicles for
Tax abuse, to be properly addressed.
John Cullinane, CIOT Tax Policy Director, said:- "There is a need to
separate fact from fiction on Tax Reliefs. Most Tax measures are enacted on the
basis of a hypothesis about how much they will cost and what they will achieve.
Yet little work is carried out to understand whether the basis on which
Parliament was asked to enact them has actually been borne out. Effective data
led evaluation will make it easier to identify unsuccessful or poorly designed
Tax Relief regimes which need to be revised or wound up, and to monitor
unexpectedly high take up. This might of course point to otherwise undetected
Tax abuse, but in any event suggests that the cost effectiveness of the relief
might need to be reviewed. Appropriate Tax Reliefs can help small businesses
grow and achieve their full potential. Taxpayers arranging their investments in
order to access reliefs, provided that this is within the relevant conditions
and reflects genuine activity, should be seen as a positive step, achieving the
policy objective of investment, rather than assumed to be misuse of the relief." The Better Budgets report suggests one trigger for post legislative review could
be 'sunset' clauses or mandatory re-authorisation. That would require
Parliament to make a positive decision to continue with the reliefs, providing
the basis for Parliament to return to the issue of whether the incentives are
meeting their objectives, and whether there was sufficient evidence to make that
assessment.
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