Managing tax complexity: the institutional framework for tax policy-making and oversight

There is a widespread view that tax systems are too complex and that simplification would be a desirable outcome. Complexity leads to cost, uncertainty, avoidance opportunities and the inability to engage in tax issues. There is a point at which complexity becomes so great and unmanageable that it begins to undermine the rule of law, because it does not enable individuals to regulate their affairs properly. This paper does not take issue with the view that complexity is undesirable, but accepts that it is, to some extent, inevitable. The thesis here is that complexity should be reduced wherever possible, but that simplification cannot be the only, or even the main, driver of reform. Where simplicity cannot be achieved consistently with other objectives, there should be mechanisms to help taxpayers and revenue authorities to navigate through the remaining intricacies. Improved institutions could assist in providing ways of managing uncertainty and increasing understanding, as well as leading to improvements in the tax system. In the UK, however, lack of clear thought about the operation of our relevant institutions means that they do not play the part they should do in improving tax law. In the UK there is a proliferation of institutional approaches and, in particular, the Office of Tax Simplification (OTS) was created specifically to tackle the issue of complexity, but new institutions need to tackle the problems at root and it is not clear that the OTS or any of the other new institutions created over recent years have been able to do that. The paper concludes that there remains a need for institutional reform in the UK and suggests the transformation of the Office of Tax Simplification into a well resourced Office of Tax Policy, with wider scope than simplification and answerable to a Joint Committee of Parliament on Taxation Policy.