Tax simplification: Moving from talk to action

What exactly is tax simplification? How can it be achieved?

What exactly is tax simplification? How can it be achieved? The ongoing debate among Canadians has yet to produce tangible results. It is appealing to call for drastic measures to streamline Canada’s tax system and remove the complexity and resulting compliance burden. However, is this really feasible in a complex, modern economy like Canada’s? While administrative red tape and unduly complicated tax rules should be avoided to the extent feasible, the goal of pure tax simplicity is probably unachievable and not likely in the country’s or taxpayers’ best interests.

What most will agree on is that elements of the Canadian tax system can be simplified, but more importantly the overall goal should be to create a tax system characterized by efficiency, transparency and certainty, administered through a user-friendly and cooperative approach.

Such a system would seek to address the various factors that make a simple tax system difficult to achieve:

  • competing interests in the development of tax legislation: social, economic, political and legal
  • the desire for fairness in the tax system
  • the need to collect sufficient revenues to manage the government and finance its programs and services and to protect that revenue base from erosion through tax avoidance or non -compliance

By broadening the debate beyond purely simplification, policymakers and stakeholders can move toward the development of processes that would bring the Canadian tax system in line with the above goals over both the short and long terms.

In my view, improving the tax system requires a two-step process. The first phase would identify short-term opportunities for simplifying the tax system, while the second phase would involve developing recommendations for long-term structural improvements. The federal government should establish two separate bodies to achieve these ends.

Firstly, the federal government could establish an independent body to oversee the existing tax regime. Working within the existing political, economic and legal framework of the tax legislation, this body’s role would be to consult regularly with various stakeholders and recommend specific changes to existing legislation that is not achieving the desired result or entails costs that outweigh the revenue being raised or protected. This body would also have an objective to identify all opportunities to reduce the compliance burden of taxpayers.

Secondly, the government could establish an expert panel, perhaps a royal commission, with a broad mandate to review long-term structural improvements to the tax system and make recommendations on (among others):

  • organization, format and clarity of legislation
  • appropriate use of specific and general anti-avoidance rules
  • process for converting tax policy into tax legislation
  • broad tax policy changes in areas like the small business deduction, taxation of corporate groups and taxation of family units, where changes could be made to greatly simplify or otherwise improve the tax system without greatly reducing the tax revenue collected

With Budget 2013 just around the corner, the federal government has a great opportunity to start moving the debate over Canada’s tax system from talk to action. I believe the adoption of this two-part process would ensure that steps are taken to deal with the current system in parallel with steps to address systemic issues that would require a more time to analyze and address.

Join in the conversation

Do you agree that it’s time to broaden the debate over Canada’s tax system beyond simplification toward more systemic improvement? Would this two-step approach achieve the desired improvements, or are there more effective alternatives to achieve these ends?

Post a comment below, or email Gabe Hayos directly.

Gabe

Conversations about Tax is designed to create an exchange of ideas on tax policy and practice developments and issues and their impact on Canadian accountants who practice tax.

About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada

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