September 8, 2009
We can only welcome the G20 leaders proposal to improve coordination between national authorities as a key aspect of restoring confidence in global financial regulation.
The question is however now if there is a need for similar action in the field of taxation. It is hence crucial to determine if, under current global economic conditions, tax policy has helped or hindered national economies, as well as to understand whether greater global coordination between governments is a positive or negative influence on policy.
According to a paper entitled Competition or Coordination? Reassessing Tax in a Global Environment recently that ACCA (the Association of Chartered Certified Accountants) is about to publish, tax policy has encouraged companies to use debt rather than equity. This has inadvertently fuelled the global financial crisis, and is an example of how distortions in tax treatment of business activities should be removed.
Tax policy is and must remain in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe. Powerful nations should not seek to bully or influence low-tax developing nations; however, coordination can play a useful part in areas such as green taxation, where only international action will be successful in achieving societal objectives. In the long term, a more radical approach to taxation, such as the establishment of a tax policy committee, may be necessary.
Author : cecilebonino